Timelines & Rules
While a like kind exchange does not have to be a simultaneous swap of properties, you must meet two-time limits, or the entire gain will be taxable. These limits cannot be extended for any circumstance or hardship except in the case of presidentially declared disasters
Replacement properties must be clearly described in the written identification. In the case of real estate, this means a legal description, street address, or distinguishable name. Follow the IRS guidelines for the maximum number and value of properties that can be identified.
The first limit is that you have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification must be in writing, signed by you, and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary. However, notice to your attorney, real estate agent or persons acting as your agent is not sufficient.
The second limit is that the replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier. The replacement property received must be substantially the same as property identified within the 45-day limit described above.
What are the time limits to complete a Section 1031 Deferred Like Kind Exchange?
Measured from when the relinquished property closes, the Exchangor has 45 days to nominate (identify) potential replacement properties and 180 days to acquire the replacement property. The exchange is completed in 180 days, not 45 days plus 180 days.
As an Exchangor, you are required to provide in writing an “unambiguous description” of the potential replacement property prior to midnight on the 45th day (after the close of the first relinquished property). A legal description or property address will suffice. If you wish to identify or purchase multiple properties, you must follow one of the following guidelines:
Identify up to three properties of any value with the intent of purchasing at least one.
Identify more than three properties with an aggregate value that does not exceed 200% of the market value of the relinquished property.
Identify more than three properties with an aggregate value exceeding 200% of the relinquished property, knowing that 95% of the market value of all properties identified must be acquired.
A submitted purchase agreement is considered a sufficient identification.
Any properties purchased and closed within the 45-day time period qualifies as an identification.
1031 Exchange Expertise
The tax deferment provided by a 1031 exchange is a wonderful opportunity for investors. Although it is complex at points, those complexities allow for a great deal of flexibility. This is not a procedure for an investor acting alone. Competent professional assistance is needed at practically every step.
Granite Exchange has experience managing the entire 1031 exchange process for you and can work with you to provide replacement assets when you need them.
Contact us today to get started.