Year End Exchange Issues: A Must Read!

Issue #1: Hidden Value in Failed Exchanges

Did you know that even if your 1031 Exchange fails you may be able to defer your tax liability for an additional 12 months? Due to a wrinkle in the tax code, investors who open a 1031 Exchange account in 2009 but fail or cancel the 1031 Exchange and receive the sale proceeds in 2010 will be obligated to pay taxes on the transaction by April 15th of 2011. That's an additional 12 months of tax deferral! What could you do with your tax dollars for an additional 12 months?

Keep in mind the taxpayer must have a bonafide intent to exchange.

Issue #2: Less than 180 Days to Exchange!

Most people automatically assume that they have 180 days to complete their 1031 Exchange. In some instances this is not the case. For clients who close escrow on their relinquished property after October 17th, the exchange must be completed on or before tax returns are filed.

The tax code states that the time frame to complete a 1031 Exchange is 180 days or until taxes are due, whichever is sooner.

For a calendar year taxpayer, taxes are due on April 15th. If escrow closes on the relinquished property after October 17th, the exchange period is less than 180 days.

However, the taxpayer can get the full 180 days, by obtaining an automatic extension of the due date for filing the tax return.