A 1031 exchange is a powerful tool for real estate investors. It allows you to defer paying capital gains taxes on the sale of an investment property by reinvesting the proceeds into a new property. But what happens if you miss a deadline when completing a 1031 exchange?
There are three key deadlines that must be met when completing a 1031 exchange:
1) The 45-Day Identification Period
2) The 180-Day Exchange Period
3) The Replacement Property Received Deadline
If you miss any one of these deadlines, your 1031 exchange will not be valid and you will be required to pay capital gains taxes on the sale of your property. So, it's important to understand each deadline and plan accordingly.
The 45-Day Identification Period is the first deadline. This is the period of time in which you must identify the replacement property or properties that you wish to purchase with the proceeds from your sale.
The 180-Day Exchange Period is the second deadline. This is the period of time in which you must complete the purchase of your replacement property or properties. The clock starts ticking on this deadline as soon as your original property is sold.
The Replacement Property Received Deadline is the third and final deadline. This is the date by which you must actually receive the title to your replacement property or properties. Unlike the other deadlines, this one is not tied to the sale of your original property—the clock starts ticking on this deadline as soon as you close on your replacement property or properties.
As a real estate investor, it's important to understand the deadlines associated with 1031 exchanges. Missing just one of these deadlines can invalidate your exchange and result in costly capital gains taxes. So, plan ahead and work with a qualified intermediary to make sure everything goes smoothly. If you have additional questions or need help getting started, give us a call at (888) 508-1901 to schedule a consultation.
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