1031 Exchanges that Span Two Tax Years – Extending your Tax Return Deadline to Preserve your Timeline
FILING AN EXTENSION TO PRESERVE YOUR 180 DAY EXCHANGE PERIOD
Section 1031 of the Internal Revenue Code requires that taxpayers acquire all replacement property by the earlier of 180 days from the sale of the relinquished property or the Federal tax return due date for the year in which the exchange commenced. Therefore, taxpayers with exchange transactions commencing in the 4th quarter of the calendar year, may have less than 180 days to complete their exchange, unless they file an extension. After completing the exchange, taxpayers can then file their Federal return and report their 1031 exchange transaction on IRS Form 8824 any time before their extended filing date.
Once a tax return is filed, it typically cannot be amended to include the exchange or for an extension of time to complete the exchange. If you file the return prior to completing the exchange, the sale of the relinquished property should be reported as a taxable transaction. Likewise, if your tax filing due date passes without an extension, your exchange has ended. [§1031(a)(3)(B)]
For calendar year taxpayers, this issue generally applies to exchanges that were started after Mid October, and prior to the new year. For fiscal year taxpayers, the need to file for an extension may vary. An earlier exchange start date of Mid-September applies to business entities that are calendar year taxpayers due to file taxes by March 15th. The Treasury Regulations contain an example of a calendar year taxpayer that started an exchange in the 4th quarter of a tax year.
Exchangers are strongly encouraged to discuss this deadline issue and the effect of filing an extension with their tax advisors. Although there is no cost for obtaining extensions and they are liberally granted; filing for an extension does not extend the time to pay taxes. Therefore, estimated payments may be required to avoid interest and penalties.
Please visit the IRS website for more information to File for an Extension:
Please also consult with your tax advisor regarding filing for an extension of your state tax returns. Legal 1031 does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of your exchange transaction.
To calculate your 45 and 180 day deadlines please use our Exchange Deadline Calculator.
Legal 1031 Exchange Services, LLC does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of your exchange transaction. Property owners must consult their tax and/or legal advisors for this information. Our role is limited to serving as qualified intermediary to facilitate your exchange.
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