1031: Outbid on 3 properties

[Jesse Murillo]

My 45th day is coming up. What happens if I can't close on any of the 3 identified properties ?

With a hot real estate market and multiple offers on properties, can I change properties if I'm outbid on initial 3 properties?

From what I have read, If I don't close of any of the 3, it would be a failed exchange and I would get taxed on the money sitting with the 1031 company, is this true?  

Any advise would be greatly appreciated.

[Dave Foster]

@Jesse MurilloAs long as you're within your 45 day identification you can simply shop for more properties. The list does not "go hard" until the end of day 45 and you don't have to close during that first 45 days. But this is why the identification period is so important - if you're past your 45 day period then the properties on your list are the only properties you can purchase that will satisfy the 1031 exchange. It is the property not the owner that matters unfortunately. So if you get outbid for a property and you are past your 45 day window the IRS's attitude is that you can still buy that property - just from a different owner.

There is no penalty for not completing a successful 1031 exchange. If you can't find good replacements or if you lose the options on your list and are past the period then let your exchange die. You'll pay the tax on the profit from your sale (not the proceeds being held) but no penalty.