The short answer is that you must close on the replacement property by the earlier of the following two options:
- (1) 180 days after you sell or otherwise dispose of your relinquished property,
- (2) The date when the proceeds from selling your previous property are no longer subject to certain restrictions.
Additionally, there are several other rules and procedures that must be followed in order to complete a 1031 exchange including:
-Exchanging properties must be “like kind” (this is contrary to what most people think because it doesn’t have to be an exact mirror image of each other), – You can only do one 1031 Exchange every 24 months, – Your new property to be identified within 45 days after you sell or dispose of your previous property, but if you can’t manage to do this, we have a way to help people that tell us to “close my 1031 exchange today.”- Of course the cost basis of these must stay the same (no wash sale), and lastly – You have to hold on to this new property for at least one year.
When exactly do I close on my 1031 exchange purchased property?
In order to answer that question we will have to look into each of the above requirements individually:
1. The first option, that you must close on the replacement by 180 days after selling your old property, would not apply if you are excising a personal residence from your 1031 exchange, as this is allowed to be held for a period of up to 2 years with no tax due until it is actually sold. In fact any time you are dealing with a personal residence, the replacement property purchase date is not material to whether or not you have completed your 1031 exchange transaction.
2. The second option of the replacement closing being required no later than the date on which proceeds from selling your previous property are no longer subject to certain restrictions means that if you are selling some real estate, you cannot have any of those funds encumbered until at least 180 days after you acquire your new property – this avoids someone simply holding onto their funds in order to avoid becoming taxable on them after waiting so long.
3. You must identify your new property within 45 days after buying out of pocket costs, but it doesn’t have to be purchased before performing an interim closing on the first one (this interim closing is not for sale, but to determine what the capital gains tax liability will be before acquiring the new property). The IRS has stated that if you are unable to identify your replacement property within 45 days of selling your old one, it would be prudent to wait until you are able to do so before transferring any funds from your previous deal or file for a 1031 exchange extension.
4. The 1031 exchange transaction must maintain a consistent cost basis meaning that there can’t be any wash sales or other taxable events between when you sell one property and buy another that could change the price structure of how much profit was made on either side.
5. Finally, you have to hold onto your 1031 exchange purchased property for at least 1 year in order complete this process successfully. If you sell the property within the first year, you will have to pay income tax on any funds that would normally be deferred until you actually sold your property. This means its typically easier to deal with a 1031 Exchange Fund Provider to speed this process up and get a respectable return on investment at the same time.
There are other steps that need to be taken before you can accurately assess the 1031 Exchange closing date, 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 determine your actual date of closing 1031 Exchange. 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.