1031 Property Exchange Extension Rules

The 1031 exchange is a legal procedure that is named from section 1031 of the Internal Revenue Code, which allows you to sell your investment properties and exchange them for new ones, and the capital you gain between it is exempt from taxes and can be utilized to continue on this property exchange indefinitely.

It is important to note, however, that these property exchanges can only be made on ‘like-kind’ properties, and the Internal Revenue Service states the limits within which people can make use of the 1031 exchange; for instance, there are a number of restrictions placed on vacation properties.

In essence, the more investors make use of the 1031 exchange service, the more their primary capital multiplies and increases their purchasing power since the profit they make on each property is entirely theirs to keep, without having to pay tax on it. And even though there are technically no limitations on how often or frequently investors can make use of the 1031 exchange, there are certain replacement property rules that investors need to abide by in order to make the most of the 1031 property exchange tax benefits.

Rules for 1031 Exchange

The 1031 delayed exchange time limit states that investors have 45 days from the date of sale or relinquishment of the previous property to identify the new property they want to purchase. The identification of the replacement property needs to be done in writing to the person involved in the sale, such as the seller of the property. A written document giving an unambiguous description of the replacement property needs to be signed and handed over to the intermediary in charge of the exchange in order to meet the delayed exchange time limit. Once these 45 days are over, it is not possible to close any deal on a property that has not been listed on the official identifying document.

Following the identification of the replacement property, the investor has 180 days from the point of relinquishment to make the final purchase of the replacement property. If this timeline is not met, the entire capital that they stand to gain or have received from the sale of the previous property becomes taxable.

It is important to note that it is not possible to make a 1031 exchange deal if the 45- and 180- day time limit has been crossed. An extension is not possible under any circumstances or hardships faced by the investors. The only way this deadline can be extended is in the case of presidentially declared disasters.

If you are looking for an intermediary who can take charge of all of your 1031 exchange needs, you should check out 1031 Granite. They have a 1031 exchange boot calculator that lets users calculate exactly how much time they have to file the necessary documents and make the exchange they want without paying taxes. Granite Exchange Service is a full-service, 1031 real estate exchange service provider that is dedicated to helping its clients build wealth in the long term. They are a group of certified exchange specialists that provide 1031 exchange services to real estate investors, with over 20 years of experience in the field of real estate exchange.