1031 Exchange: What If I Can't Sell My Relinquished Property?

Not every 1031 exchange goes as planned. In some cases, an investor may have already found and committed to a suitable replacement property (a Reverse Exchange). Yet, as the 180-day deadline draws near, finds that he or she has still not found a buyer for his or her relinquished property. In this case, the investor has two options.

The first option is to discontinue the exchange and take deed to the replacement property. Of course, this eliminates the tax-deferral benefits an exchange would have provided, but in some cases this is the best course of action.

The alternative is for the investor to decide to extend his or her Reverse Exchange outside the safe harbor provisions of the IRS code. Since the safe harbor guidance issued by the IRS is not mandatory, an investor is free to conduct an exchange that falls outside the protections of Rev. Proc. 2000-37. Such exchanges stand or fall on their own merits, exposing the investor to potentially more risk.

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