All 3 identified properties under contract in 1031-- now what?

Question

Hi guys-

We currently identified 3 properties for a 1031 exchange, and they all went under contract with different buyers. The 45 identification period has passed by 7 days... now what? Has this ever happened to anyone?

I know this is a question that needs to be answered by my CPA and RE attorney, but I wanted to throw it out here just in case.

Thank you for any knowledge!

Steph Martinson

martinsoninvesting.com

Dave Foster · Answer

@Stephanie Martinson, Unfortunately, all of the COVID extensions passed on July 15. The IRS never asks you to specify who you are buying a property from. They only ask you to identify the property you are buying.

You have properly identified your properties within the 45 day period. Now you have the remainder of the 180 day exchange period to purchase one or more of those properties. Your identification period is passed so you're stuck with what's on that list. And it actually might be a bit worse than you imagined - because you have a valid exchange with valid identifications the next time your exchange can die is day 181. So your proceeds are stuck with the QI until them.

So you do have some options

1. Wait and see if any of those contracts fall through (they do) and then renegotiate with the seller.

2. Wait and see if the sales go though and then try to buy them from the new owner (its happened)

3. Find out who got the contract and see if you can pay them to assign it to you (it happens).

4. Wait until the 180th day has passed and get your proceeds back. The profit will be taxable.

It's no fun when this happens. And the only way you can mitigate is to shop early and shop hard. Go into contract before you close the sale of your old property. Use contingencies if you can. And if the profit justifies it a reverse exchange can be a good option as well as having a back up or two that you know will be available.

Alex Olson · Answer

Are you saying all three of the properties you have identified in the 45 day window post closing are all under contract and you are now wanting to know how to decide which property to close on?

Steve Morris · Answer

"The 45 identification period has passed by 7 days... now what?"

Ask your QI, but in normal times, you owe taxes now. Due to Corona, there may be some workarounds, but check with your QI. About your only normal out is if one falls out of contract and you can close within 180 days of prior close.

Of course, since you didn't mention an accommodator, if you got proceeds in an account with your direct access, it may be moot and you already owed taxes as of the date of close.

LESSON LEARNED - You have no more than 45 calendar days to get a place identified. Hard rule - Period.

Other lesson, private REITs and DSTs do have their purpose.

All 3 identified properties under contract in 1031-- now what?

All 3 identified properties under contract in 1031-- now what?

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