Counting correct 1031 Exchange timelines is critical to successful transactions.
Today we discuss the issue of when the 45-day (for Identifying) and 180-day (last day to close on the purchase of replacement property) timelines in a Section 1031 exchange begin.
Timeline Requirements are Absolute!
It is important to note that the 1031 Exchange timeline requirements are absolute. “There are no good faith or other exceptions to save the exchange if the timeline requirements are not met” (Knight v. C.I.R., T.C.Memo ).
The first day for both the 45 day and 180 day time periods begin on the day of the relinquished property closing.
Tom Taxpayer closes on the sale of his investment property (relinquished property) on Thursday, February 25, 2020. His 45th day for ID purposes is Saturday, April 9, 2020. (5 days in February, 31 days in March and 9 days in April). His 180th day for closing on the replacement property is August 22, 2020 (5 days in February, 31 days in March, 30 days in April, 31 days in May, 30 days in June, 31 days in July, and 22 days in August). Note – there are no extensions when the 1031 Exchange timeline date ends on a weekend or a holiday. Because there are no extensions given, Tom Taxpayer must make sure he identifies his property and gets that identification to his Qualified Intermediary (QI) in a timely fashion, because his 45th day lands on a Saturday. Delivering his Identification to his QI on Monday, April 9, 2020 (day 47) is too late and the 1031 transaction is disallowed.
It’s tax season—so here is one of my favorite quotes: “A Dutch woman explains her nation’s flag to an American friend. “It symbolizes our taxes” she jokes. “We get red when we talk about them, white when we get our bill, and blue after we pay.” “Same with us,” says the American. “Only we see stars too.” Don’t let your clients see stars—remind them of the opportunities of doing a Section 1031 exchange.
We look forward to working with you on future 1031 exchanges. Should you have a question on a Section 1031 exchange, just call me at our toll-free number: 866.903.1031—We are here to help.—Steve