1031 Exchange - Question on 45 vs 180 Day Deadline

[Daniel Newman]

Hi everyone!

For a 1031 exchange, I'm aware that you must identify a property within 45 days, and acquire the property within 180 days. My question is: are you only able to acquire properties in that 180 day period that you identified in the 45 day period? What if a new property pops up on the 50th day that you want? Also, given the current state of the market, properties are being snatched in days. What if all the properties you identified in the 45 days are no longer on the market only a couple weeks after? 

Curious what the true requirements are for the 45 days versus the 180 days, and how people have navigated this successfully in the past. Thanks! 

[Bill Brandt]

Nope, only properties identified in first 45 days, too bad on 50th day. 

Closing in 135 days on the 45 day properties shouldn’t be an issue. But you could/should certainly have an accepted offer on one of your 45 day properties before the 45 day mark. Maybe ask for a 30 day lease back on the property you’re selling to make it easier. 

[Dave Foster]

@Daniel Newman, if you're within the 45 day identification period any property can be identified or gone into contract on.  Once day 45. passes only properties on the list may be used.  And the list may not be changed after day 45.

In this market we're counseling our clients that they need to think of the 45 day identification period as more of a 45 day contract period.  If you're not in contract for your new property by day 45 your chances of completing a 1031 exchange go way way down.

And remember it's fine to actually get a contract for your new property before your old property closes.  You simply have to close the sale before you close the purchase of your new property.  Selling your property is easy.  Finding the replacement not so much.  So take care of the hard job first.

[Daniel Newman]

Quote from @Dave Foster:

@Daniel Newman, if you're within the 45 day identification period any property can be identified or gone into contract on.  Once day 45. passes only properties on the list may be used.  And the list may not be changed after day 45.

In this market we're counseling our clients that they need to think of the 45 day identification period as more of a 45 day contract period.  If you're not in contract for your new property by day 45 your chances of completing a 1031 exchange go way way down.

And remember it's fine to actually get a contract for your new property before your old property closes.  You simply have to close the sale before you close the purchase of your new property.  Selling your property is easy.  Finding the replacement not so much.  So take care of the hard job first.

 thank you @Dave Foster. is there a limit to the number of properties that can be identified? is it just 3, or can i have a list of 20+? 

[Bill Brandt]

If you do more than 3 you have to buy most/all of them. So you will almost certainly fail with any list of 10+ unless you’re already under contract on all 10. Type “1031 exchange identify more than 3 properties” in to google to see the rules. There’s another rule if the list contains very cheap properties (200% rule) but try really hard to live with 3, it’s easier. 

[Dave Foster]

There's some confusing restrictions on how you identify and how many you can identify.  If you reach out off line I can send some resources to you.  In general, if you're buying more expensive properties than you sold you will need to keep your list to 3 or fewer.  

If you're buying significantly cheaper properties than you sold you can maybe name more than 3 (but the total value of the list must be less than twice the value of what you sold).

[Bruce D. Kowal]

Quote from @Dave Foster:

@Daniel Newman, if you're within the 45 day identification period any property can be identified or gone into contract on.  Once day 45. passes only properties on the list may be used.  And the list may not be changed after day 45.

In this market we're counseling our clients that they need to think of the 45 day identification period as more of a 45 day contract period.  If you're not in contract for your new property by day 45 your chances of completing a 1031 exchange go way way down.

And remember it's fine to actually get a contract for your new property before your old property closes.  You simply have to close the sale before you close the purchase of your new property.  Selling your property is easy.  Finding the replacement not so much.  So take care of the hard job first.

 Dave, do you ever recommend a Delaware Statutory Trust for people who are running out of time?

[Alex Olson]

Quote from @Daniel Newman:

Hi everyone!

For a 1031 exchange, I'm aware that you must identify a property within 45 days, and acquire the property within 180 days. My question is: are you only able to acquire properties in that 180 day period that you identified in the 45 day period? What if a new property pops up on the 50th day that you want? Also, given the current state of the market, properties are being snatched in days. What if all the properties you identified in the 45 days are no longer on the market only a couple weeks after? 

Curious what the true requirements are for the 45 days versus the 180 days, and how people have navigated this successfully in the past. Thanks! 

 If this is your first 1031 exchange I highly recommend sticking to the basic rules. 3 properties identified with 45 days of closing your down leg. 6 months from closing down leg you need to close on one, two, or all three of the ones you ID. Need to buy something at or above sale price of downleg. Straying away from this rarely works and is not worth the risk. If you cant find replacement property in home market, look to the Midwest. Hope that helps!

[Brittny Kenaley]

Quote from @Dave Foster:

There's some confusing restrictions on how you identify and how many you can identify.  If you reach out off line I can send some resources to you.  In general, if you're buying more expensive properties than you sold you will need to keep your list to 3 or fewer.  

If you're buying significantly cheaper properties than you sold you can maybe name more than 3 (but the total value of the list must be less than twice the value of what you sold).

 @Dave Foster

You stated that perfectly! Thank you Dave! In this market, getting into contract before the sale of your property is a great call. We are on day 10 of our identification period and just got an offer accepted so we have some relief. We are however using the funds to get into multiple properties, so we have to get moving on the others asap. 

Can you elaborate on the variation of The Three Property Rule vs. The 200% Rule? What is the logic in having these two rules? If I have $500,000 from a sale, why is it permissible to buy three properties worth a total of $8,000,000, but not four properties worth $1,000,001? We're assuming we're missing something really obvious.

[Dave Foster]

@Bruce D. Kowal, Absolutely. A DST can be a great back up if the 45 days is causing you angst. Or as a primary to go from active to passive activity. The perspective you need to have is this - Talking to a client yesterday with a 1.5 million tax bill on a sale. Worried he can't find replacements. So deciding to move into DSTs or take the tax hit. I asked him how much real estate would have to retreat to offset a 1.5 mil tax payment, He's looking at DSTs!!!

@Brittny Kenaley, Imagine a ticked off IRS.  They just lost an embarrassing 20 year court case in 1996.  Much of the case surrounded the length of time that Starker took and how many properties were involved.   As a result they have to let deferred exchanges continue.  But they don't want to make them easy.  They wan't as many opportunities to catch tax payers in nefarious activities.  And they want to dig and work as little as possible.  

Of course I'm speculating what was in the minds of the regs drafter 30 years ago.  But that history makes sense why they'll let you do anything you want if you keep your IDs to 3 or fewer.  The more properties you name, the more they get nervous.  and the more they'll have to work to unravel a bad exchange.

BTW - you can name more than three properties for more than 200% of your sale as long as you purchase 95% of the value of the list (in other words the entire list). But that can be a risky attempt.

[Brittny Kenaley]

@Dave Foster Ah ok. I went back and read more about this case...fascinating. I guess we can be grateful it exists at all. Cheers to you, Starker!