Timing of Submitting Offers to Purchase in a 1031 Exchange

In many situations, an investor looking to take advantage of section #1031 on the sale and replacement of some investment property face a dilemma. They list their relinquished property for sale, but it doesn’t sell before they find the perfect replacement property.

I am regularly asked what to do in such a scenario. There are actually two options. The investor can submit an offer to purchase and delay closing until after the relinquished property is sold. As long as the closing on the replacement property occurs after the closing on the relinquished property (even if just by a few minutes), the exchange meets the strict IRS criteria for a delayed exchange. This is often the easier route for an investor to take, presuming the seller of the replacement property is willing to wait to close the deal.

The alternative option is to conduct a reverse exchange (where the replacement property is purchased before the relinquished property is sold). This is a more costly option, but in some cases is the only way to make the exchange work.

If a 1031 exchange is in your future, visit our website to learn more about these powerful tax deferral tools and our qualified intermediary and replacement property locator services.