Common Pitfalls in a 1031 Exchange
As we transition from spring to summer, 1031 exchange transactions normally increase in popularity. So, what do you need to do to avoid any issues?
- Don’t forget to set up your 1031 Exchange before the closing of your sale. There are no exemptions here. If you don’t set up your 1031 transaction with a Qualified Intermediary (QI) like Security 1st Exchange before your relinquished property closes, you cannot do an exchange. “I forgot” is not an appropriate answer for the IRS.
- You would be surprised the number of Exchangors that forget to identify their replacement property with the QI within the 45 calendar day Identification Period. The IRS is very strict with this requirement. You cannot call the QI after the 45 days to edit or submit any changes to your identification. You can edit or revoke the ID within the 45 days, but after that time expires, you are locked in.
- Finding appropriate replacement property is essential to a successful 1031 Exchange. You must purchase replacement property of equal or greater value than the property sold. So don’t waste any time to find property. While your sale is in escrow, you may want to start shopping. Consult with your tax professional and real estate professional about this as you want your sale to close before the purchase closes.
For more information, please reach out to your tax professional for specific questions or contact the specialists here at Security 1st Exchange for assistance.