Navigating 1031 exchanges is a complex process that is best approached under professional guidance. David Moore of Equity Advantage examines the risks involved in a delayed 1031 exchange, and the ways an accommodator can help. Understand the timelines and the requirements that must be satisfied. Get the information you need to do things right before you set your plan in motion.

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What Are the Risks Involved in a Delayed 1031 Exchange?

The biggest risk with any exchange is the time constraints. The 45-day timeline for identification of property goes by far too quickly—much faster than you ever anticipate. Furthermore, the 180 days can sometimes be problematic in reverse transactions. We all know that projects don’t always run according to plan. If you’re building something, or if you have an improvement exchange, then it’s possible to run into real issues on the 180th day too. The 45-day and 180-day timelines start simultaneously—at settlement of the relinquished property’s closing. If you’re doing multiple properties, then the timeline starts with the first closing, not the last one. If you’re doing some type of warehouse transaction, then there’s not a sale or a closing per se, but there will be the transfer of an asset—and as soon as that first asset is transferred, that triggers those timelines to start.

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Understanding Delayed 1031 Exchanges

The delayed exchange is common and straightforward: the Exchangor relinquishes property before he acquires property. In other words, the property the Exchangor owns (called the “relinquished” property) is transferred first. The property the Exchangor wishes to own (called the “replacement” property) is acquired second.

What are the risks involved in a delayed 1031 exchangeHow Can an Exchange Accommodator Help Me Reduce Those Risks?

The primary way an accommodator can help reduce those timeline risks comes through communication by keeping the taxpayer and any agents in the loop and aware of the time constraints. Probably one of the major issues the brokers need to understand is where they are along the investor’s timeline. If you’re working as a buyer/broker, you want to make sure your client has day 45 ingrained in their thinking. It’s crucial that the client satisfy the identification rules by midnight on that 45th day, and that they understand when that 180th day is.

Also, if your transaction falls need the end of the year, it’s important to understand that filing a tax return can artificially shutdown the timelines, too. If you read the fine print in 1031, it says 180 days with a due date of the tax return. If you have a transaction closing late in the year, you want to make sure to complete the transaction before filing a return. If you’re not going to be done by April 15, the, you need to file for an extension.

A 1031 exchange is complex. Using an exchange accommodator like Equity Advantage puts a professional in your corner who knows all the rules. It just takes a phone call to get started: 503-635-1031.