Avoid losing a Section 1031 Tax-Deferred Exchange by paying attention to the time deadline for acquiring the Replacement Property
February 21, 2012
By: John W. Anderson
Many taxpayers that I speak to about exchange transactions state that they "know" that they have 6 months to acquire their Replacement Property. This is not accurate on two fronts.
- First, the time period that the taxpayers refer to is actually 180 days, not 6 months, and the IRS does not care whether the 180th day falls on a Saturday, Sunday or legal holiday. There is no extension to the next business day.
- The second misconception is that the taxpayer always has 180 days to acquire the Replacement Property.
The Regulations state that the Replacement Property has to be acquired by the earlier of (a) 180 days from the date on which title to the Relinquished Property transferred or (b) the date on which the taxpayer's' federal tax return is due for the year in which the Relinquished Property sale occurred. If, for example, an individual taxpayer sold Relinquished Property in an exchange on December 1, 2011, the taxpayer's federal tax return for 2011 is due on April 17, 2012. That date is only 138 days from December 1, 2011. If the taxpayer has not acquired its Replacement Property by that date, the taxpayer could lose the exchange and have to pay capital gains taxes. Solution: The taxpayer extends its 2011 federal tax return, thereby extending the due date, and achieves the full 180 days to acquire the Replacement Property.
For additional information on 1031 Tax-Deferred Exchanges, please contact the author, John W. Anderson at 804.697.2020.
