As we wrap up 2023, it’s essential to revisit one of the most powerful tools in the real estate investor’s toolkit: Section 1031 Exchange. While this strategy offers significant tax benefits, there are crucial deadlines and rules to follow. Here’s a brief overview to ensure you’re on track:
Exchange Deadlines and Tax Considerations
The 1031 Exchange allows investors to defer capital gains taxes by reinvesting proceeds from the sale of an investment property into a new property. However, the timeline for completing this Exchange is stringent.
180 Days – Not Just a Simple Count
Many investors believe the 180-day rule is straightforward. However, it’s crucial to understand the nuances, especially as we approach the year-end.
Scenario: If your relinquished property closed between September 17th and December
31st of 2023, your 180-day Exchange period might be at risk.
The Real 180 Days
According to U.S. Treasury Regulations section 1.1031(k)-1(b)(2), your replacement property acquisition window closes at midnight on the earlier of:
The 180th day after you transferred the relinquished property OR the due date (including extensions) for your income tax return for the taxable year of the relinquished property transfer.
The New Year’s Impact
For those whose 180-day period extends beyond the due date of your 2023 tax return (this year, for individuals, April 17th, 2024), a crucial step must be taken.
Next Step’s: File an Extension
If your 180th day falls after April 17th, 2024, it’s imperative to file an application for an extension of time with the IRS. Failing to do so means you cannot acquire any replacement property post the tax return due date.
A Vital Reminder
If your Exchange is not completed by the due date of your tax return — FILE AN EXTENSION.
The 1031 Exchange offers an incredible opportunity for real estate investors. Still, it demands attention to detail and adherence to timelines. As we usher in the new year, let’s ensure we navigate this process effectively.
Wishing you a prosperous 2024 filled with successful Exchanges!
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
