Can I get an extension on my 1031 exchange if the property falls out of escrow?
The short answer is “Yes!”
If your 1031 exchange falls out of escrow, you must identify a replacement within 45 days. The IRS requires this under IRC Section 1031(a)(2).
You can then extend the time to close on your new property using a 1031 delayed-exchange or an extension of 180 days (in some cases) and use the EAT (Exchange accommodation titleholder) method for identification and replacement process outlined in Internal Revenue Code Sections 1031(b)(4). Yes it sounds complicated but all the forms and information are clearly spelled out with examples. You do not need an attorney or CPA to help you but they can be good resources depending on how complex your transaction is.
In a delayed exchange, you can identify replacement property up to the last day of the identification period.
The maximum time for a delayed exchange is 180 days from the date that you or your agent transfers the relinquished property to the qualified intermediary (QI).
Keep in mind that after you have transferred replacement property, you still have until December 31 of the year following when you actually received cash or other boot to identify which property it will be if more than one was identified as replacement property. We have your replacement property waiting, and we’re here to help save time on the extension paperwork and help the people that say, “close my 1031 exchange fast!”
An important point to remember is that it is possible for replacement property’s FMV to be more or less than the relinquished property’s FMV depending on what happens during escrow. You lose your 1031 exchange rights if you knowingly dispose of the relinquished property within two years after the exchange, so ideally you do not want to go into this unless you are sure that there will be no complications with closing.
IRS Section 1031 provides several methods for identifying replacement property. The delayed-exchange method, the reverse-exchange method, and the closing-agent methods are laid out by the IRS. Another form of 1031 Exchange that work for some people is a TICA 1031 Exchange.
How does a 1031 tax deferral work?
How can a professional help me with my exchange? It’s always good to have an idea going into escrow what you want to do with your 1031 exchange because it is a complicated process that requires some planning. In some cases where there may be multiple properties involved or very little time before leaving the country or moving out of state, we will help a client identify a replacement property before our initial meeting or even before you sign a contract on your current house so that we can expedite the process without any problems. We do not mind getting started early as long as everyone is on the same page and understands what is going to happen next.
You need someone that knows how to close a 1031 exchange quickly!
There are other steps that need to be taken before you can successfully complete a 1031 exchange extension, which is why it’s important to contact an accountant or tax professional in order to understand how they work and what all of this entails.
This article provides only general information about how to get an extension to a 1031 exchange program. It is not exhaustive nor should it be considered advice on any particular matter. The author explicitly disclaims liability for damages incurred by relying on these contents or related materials from third parties. Always seek the help of a qualified legal, accounting, real estate professional and/or such related professionals when dealing with specific legal or financial issues.