1031 Exchange after the 45 days

8 Replies

Hi! I am working with an investor who has sold a property and is now looking to buy a property to do an exchange. He identified 3 properties within the 45 days and now the deadline is past. But now, none of those properties that he identified are going to work for him. He is past the 45 days and has found another property he wants to add/substitute. How can he do this and has anyone ever done this before. Thanks for your help with this!

@Kelly Magreevy

The 45 days are cast in stone. A person can make exchanges on the list during the 45 calendar days up until midnight on the last day.

If a seller waits until the last minute in a fast moving market, this is a big possibility of this scenario happening. It's usually advised not to wait until the last minute to get a property under contract to avoid these situations.

Did your client speak with the intermediary about the situation?

@Kelly Magreevy , Sorry like @Christopher Phillips said - no exceptions.  The three on the list are what is available to him.  It's not uncommon for an investor to revisit those properties even if they have been sold or gone under contract.  The address is what is key not the current owner.  

Hi! Thanks for the reply and yes he did. This is what we found and was wondering has anyone done this before:

If you want to keep your options open after the 45th day all you need to do is make a valid written identification of what your replacement properties may want to purchase and then use the remaining 135 days to do your due diligence.

Was wondering if this can be done with a written explanation and has anyone done this before?

@Kelly Magreevy

IRS has very strict rules on the 45 day identification.

"The first limit is that you have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary. However, notice to your attorney, real estate agent, accountant or similar persons acting as your agent is not sufficient."

"These limits cannot be extended for any circumstance or hardship except in the case of presidentially declared disasters."

"The replacement property received must be substantially the same as property identified within the 45-day limit described above." 

So basically he either purchases one of those three properties, two no longer available and one has an UST on the property he just discovered otherwise he can't do the exchange?

@Kelly Magreevy - You are correct. Your client must close on at least one of the properties he identified during the 45 day identification window. If he does not close on one of those properties, then he has a failed exchange.

@Kelly Magreevy , Yep.  But "unavailable" is relative.  Depending on the potential tax ramifications and the mood of the buyer who outbid him he may be able to visit the new owner of one of the now "unavailable" properties.  Sure it will be more expensive but sometimes that still outweighs potential tax consequences.  He's still buying properties from his list.  Just from a different seller :(

That's too bad he ended up in that situation, could have been avoided with a 3rd backup property that was available to close should the first two not work.  It's really important that sellers have a strategy in place before they list/close and for sure by the time their 45 day clock starts.  Something about that clock makes time speed up!

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