1031 Exchange: The 180-Day Rule

Completing a successful 1031 exchange requires compliance with strict time requirements imposed by the IRS. One that sometimes catches an investor off-guard is the 180-Day Rule for Receipt of Replacement Property.

This rule works in conjunction with the 45-Day Rule for Identification, and governs any deferred 1031 exchange (when the replacement property is not acquired simultaneously to the relinquished property).

Confusion sometimes arises with the 180-Day Rule, due to the either/or nature of the requirement. To comply with the rule, an investor must receive replacement property and complete the exchange no later than the earlier of:

• 180 days after the transfer of the relinquished property, OR
• The due date of the income tax return, including extensions, for the tax year in which the relinquished property was transferred.

With regard to the second provision, it is important to note that failure to put an extension on a tax return may shorten the 180 days if the relinquished property was transferred near to April 15th. This often catches unwary investors off-guard. It is important to file an extension to the tax return if an exchange is started close to April 15th.

There are a few other things to note about the 180-Day Rule.

Any replacement property must be substantially the same as the property that was identified under the 45-Day Rule. Also, there is no provision for extension of the 180 days, either due to hardship or any other circumstances with one exception. The 180 days can be extended for areas declared disaster areas by the president.

To learn more about 1031 exchanges or our qualified intermediary and replacement property locator services, please visit our website.