1031 Exchange Rules for EOY
IRC 1031 Exchange Rules for Deals straddling two tax years may require an application for an extension on the closing deadline for Replacement Properties .
According to Kassie Pantelakis, Esq., National Sales Manager: OREXCO1031.com : Don’t forget to file for an extension to protect your full 180-day exchange period
If you are beginning the process of an IRC §1031 exchange and your relinquished property will close between October 18th and December 31st, 2021, please be aware that your normal exchange period of 180 days will be shortened if you close during this period.
Why? Because Treasury Reg. § 1.1031(k)-1(b) (ii) – provides as follows:
(ii) The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of the tax for the taxable year, in which the transfer of the relinquished property occurs.
In other words, you have 180 days after closing your relinquished property to complete your exchange UNLESS your tax filing deadline occurs first, in which case your exchange period will instead expire on the day your taxes are due. In 2022, the due date for filing 2021 returns (for most taxpayers) is Friday, April 15th, 2022.
For example, suppose Mr. Smith sells Greenacre Farm on December 11th, 2021 as part of a 1031 exchange. The 180th day thereafter is June 8th, 2022. Unfortunately, Mr. Smith will not have until June 8th to complete his exchange because his tax filing deadline occurs before the 180th day of June 9th. If, however, Mr. Smith requests an extension of time to file his tax return, he will get the benefit of a full 180-day exchange period.
So, exchangers, if your relinquished property is scheduled to close between October 18th, 2021 and December 31st, 2021, don’t lose out on your full 180-day exchange period. Make sure you file for an extension on or before April 15th, 2022.
For information on filing for an extension, please visit the IRS website at http://www.irs.gov/taxtopics/tc304.html <https://r20.rs6.net/tn.jsp?f=001aFZK_pk7u1M8XlqyKCnzQQ2FziBogedag0iC0XZk_Nn0cnKSUeOvqvBezINYWcMqffVc_OuCod3eZOG0tTsO9M14WuXFkr2Pjbh6InrclAWGq31MBNpjRIqBPGMEt18KUEs4ll30zURy18NmFpEbJz9MuyaKWSv7Qi0z1DCCm0k=&c=n1ARUgktUq8X7skr_EP2GuJ-MqloFQbii0C98i0W6DSXN1QRvAc1HQ==&ch=KlFyjOuG_mpkzsyWinWsRzp9oDfCaHIzzyMVFLx4UgXfLsk-vsl0sA==>
Taxpayers contemplating an exchange should always consult their tax or legal advisor.