Three 1031 Pitfalls to Avoid
There are a few things to always remember when considering a 1031 Exchange.
- Don’t forget to set up your 1031 Exchange before closing.
You must set up your 1031 Exchange with Security 1 st Exchange as your Qualified Intermediary before you close on the property that you are selling (or buying if you are performing a Reverse Exchange). The tax code is very clear, if you close on your sale without having a 1031 set up, you cannot go back and set it up afterwards. Please try to give us a few days to get things ready before the sale closes, but in many situations, we can even set up your 1031 Exchange on the same day of your closing. - Missing your 45 day identification date.
From the date of the closing of your Relinquished Property, you have 45 calendar days to identify your Replacement Property with your Qualified Intermediary. These 45 days are not business days, but calendar days (including weekends and holidays). There are no extensions to the 45 day identification period, so make sure you identify your replacement property(ies) in writing on the Qualified Intermediary’s identification form and submit that form to the Qualified Intermediary before midnight on the 45 th day. - Not purchasing replacement property equal or greater than the relinquished property.
Most exchangors doing a 1031 Exchange are looking to defer all of their taxes. But if you do not purchase property equal or greater than the property that was relinquished, there could be a taxable liability. That may still benefit you by saving some taxes. This should always be discussed with a tax professional to make sure that the transaction makes fiscal sense if you are purchasing less than what you sold.
As a Qualified Intermediary, Security 1 st Exchange is here to assist you during the 1031 process to make sure that things go as smoothly as possible. Always reach out to our team of professionals to help in your successful 1031 Exchange!