DELAYED
EXCHANGE
Here the taxpayer
relinquishes property and later acquires replacement
property within 180days. The taxpayer must place offers
to purchase for a MAXIMUM of three (3) properties within
45 days.
Taxpayers historically prefer the delayed exchange
because it allowed their trading to acquire relinquished
property without having to wait for the taxpayer to
locate replacement property.
But, IRS 1031 did not
expressly approve the delayed exchange for and without
guidance from counsel, the IRS actively opposed and
discouraged delayed exchanges. This opposition has now
changed to acceptance subject to the Regulations and
Revenue Procedures published by the IRS. If a taxpayer
fails to perform a required step or meet a deadline, the
exchange may be deemed disqualified.
Identification Period – The
45 Day Rule
·
Midnight – 45th day
·
Identify replacement property(ies)
·
Written document
·
Signed by taxpayer
·
Delivered or sent
·
To any person involved other than taxpayer or
“disqualified person”
The taxpayer must identify
replacement property or properties on or before midnight
of the 45th day after transfer of relinquished property.
Unlike other legal deadlines with which we may be
familiar, this one is ABSOLUTELY FIRM. In the
event the 45th day falls on a Sunday or legal
holiday, there is NO ALLOWANCE for extension of the
deadline to the next business day. In fact
THERE IS NO
ALLOWANCE FOR EXTENSION OF THE DEADLINE, AT
ALL.
The taxpayer’s
identification of replacement property must be evidenced
by a written document, signed by the taxpayer, to be hand
delivered, mailed, telecopied, or otherwise sent to any
person involved in the exchange other than the taxpayer
or “disqualified person”.
Exchange Period – The 180
Day Rule
Taxpayer must acquire
replacement property(ies) on or before midnight
of:
·
180th day after date of transfer of
relinquished property, or
·
Due date (including extension) of taxpayer’s tax return,
whichever is earlier
Once again, this deadline is
firm, drop-dead, and absolute. And one should never make
the mistake of thinking 180 days means six months.
Exchanges have been blown, disqualified because the
taxpayer thought he had six months. It is the actual
number of days.
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