Exchanges Started Later in the Year

What if your Exchange Starts Later in the Year?

When you perform a 1031 Exchange, you will need to report that transaction on the appropriate year’s tax return. And when we consider the verbiage of how the code reads in regards to how long you have to complete your exchange, it says that your exchange period is the shorter of 180 days or the due date of the taxpayer’s tax return. Does that mean if your relinquished property were to close on December 31, you don’t get 180 days to complete your exchange and you must be done by April 15th, your tax filing date?

Not necessarily. In most years, if your relinquished property were to close on October 17 or later, your 180th day would expire after April 15.If you need all 180 days to complete your exchange, you may need to file for an extension using Form 4868. In this case, you can then have all 180 days to complete your 1031 Exchange and then file your final return after the 1031 portion is completed. You will also need to file Form 8824 which informs the IRS that you did complete a 1031 Exchange during this tax period.

If you were to fall into this situation, you need to check with your tax advisor to make sure that you are in compliance. Security 1st Exchange is unable to assist you with the filing of the required tax forms.