1031 Exchange issue

Buying & Selling Real Estate
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1031 Exchange issue

Kurtis RaddemannPro Member
Milwaukee, WI · Member since 2017 · 3 posts · 0 votes

I identified a property as part of a 1031 Exchange.  I no longer want the property, but the 45 day deadline to identify a property has expired.  Can I select another property to purchase even though it wasn't identified originally?

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Christopher Tile
Accountant · Long Island, NY · Member since 2021 · 189 posts · 154 votes
1mo

The short answer is no. Once day 45 passes, your list is locked. You cannot buy any property that is not on that list.

If you have other 1031 questions, definitely look to @Dave Foster . He's the 1031 wizard here, and his page is full of 1031 knowledge/replies.

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  • Christopher Tile
    Accountant · Long Island, NY · Member since 2021 · 189 posts · 154 votes
    1mo

    The short answer is no. Once day 45 passes, your list is locked. You cannot buy any property that is not on that list.

    If you have other 1031 questions, definitely look to @Dave Foster . He's the 1031 wizard here, and his page is full of 1031 knowledge/replies.

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    • Kurtis RaddemannPro Member
      OP
      Milwaukee, WI · Member since 2017 · 3 posts · 0 votes
      1mo

      @Christopher Tile , thank you for the response.  I listen to a lot of podcasts on BP and others and I thought I heard there is a way to identify another property.  Based on what I researched it doesn't seem that I can.  My Qualified Intermediary also said I can't so there is that as well.  Trying to find an out...

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    1mo

    No. They screwed up. They shoudl have told you to identify 3 (the safe number.) before the 45 days expired. Some people even lost a DST or even an UpReit as a backup safety valve.

    I assume buying is so bad you’d rather pay the taxes? At least you’re only out the 1032 fee vs selling in the first place. I also assume you didn’t sell that property specifically to buy the ken you no longer want to buy, so you’ve gotten rid of a problem property.

    That being said. There is a process some people swear by that I’m not a fan of. They call it a “lazy 1031”. You can. By the end of the year. Buy another property and do a cost seg study on it. You can then write that accelerated depreciation off against your gain.

    I’m fr from an expert but from what I think I understand. The downside is accelerated depreciation either can’t be 1031’d or is recaptured at a higher tax rate, or both. Plus you’re going to have lower depreciation deductions in the future.

    Go to your favorite podcast source and search for lazy 1031. You’ll find too many results. Try to find someone who isn’t trying to sell you something. Good luck and let me know if it works out for you. Ps. Talk to your CPA ahead of time and make sure they are familiar with the idea and comfortable with it. Not my favorite option by far. But if the tax bill is really big it might be the better of two bs choices.

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  • Aristotle Kumpis
    Specialist · Long Beach, CA · Member since 2011 · 888 posts · 401 votes
    1mo

    That's right. I'm a QI and once your 45-day ID period ends, it's too late to name another one. The pick 3 rule allows your to ID up to 3 possible properties in case one of them falls out. Unfortunately, your exchange will fail.

    Also, the QI is required to hold your proceeds until day 180 if you fail to close on the property you identified. 

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    1mo

    Thanks for the shout, @Christopher Tile!

    @Kurtis Raddemann unfortunately, after day 45, you can no longer change or exchange into anything other than what's on your list. At the same time, there is no penalty for not completing a 1031 exchange other than your exchange fee, as @Bill B. mentioned. You would pay the tax like you normally would, and that is probably better than exchanging into a property you dont really want. 

    As for any future exchanges, my recommendation is to have good backup properties on your list, or if you dont like what's on your list, just don't turn in a list and let your exchange die. On day 46, you would receive the proceeds instead of waiting the whole 180 days to receive them. 

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    1mo

    Great point @Dave Foster about not turning in the 45 day list to get your money sooner, that’s why you’re my go to guy for 1031’s.

    Follow up question, if it’s in your wheelhouse.

    Will the OP owe these taxes next year because the sale was this year or not until 2028 if he receives the funds from the QI after January 1st 2027? If they are still due what If this had occurred later in the year. Would the OP still owe taxes April 15th even if he didn't receive the funds from the QI until after April 15th? (I was thinking of teh “cash crunch” if he Starts a 1031 December 3rd and QI holds funds until June 3rd the next year.) (I was also thinking he’d get a small tax break and have all of next year for the “lazy 1031” if they hold the funds until 2027?)

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    1mo

    @Bill B. , Great question. Your accountant can choose to make it taxable for the year in which the 1031 was initiated (the sale occurs). Or, in the year it ends. If the 45th day falls in the next year, they can treat it as an installment sale with all of the tax due in the next tax return. Sometimes this can be very strategic if you can close your sale late in the year. We've even had clients who start an exchange with no real intent to complete it. And have even filed a 45 day list because the 180th day fell in the next tax year. And the tax advantage of delaying it for 12-15 months was so great.

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  • Gregory AcsPro Member
    Lender · MD · Member since 2025 · 244 posts · 93 votes
    1mo

    Unfortunately, once the 45-day identification period has expired, you're generally limited to purchasing one of the properties you originally identified. You typically can't substitute a new property after that deadline unless a very limited IRS exception applies, such as certain federally declared disaster relief.

    I'd recommend talking with your qualified intermediary and tax advisor as soon as possible to understand your options based on your specific exchange. If you do move forward with one of the identified properties and want to compare financing options or discuss the best loan structure for the replacement property, I'd be happy to help.

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    1mo

    What's the gain on sale? I'd be looking to figure out what your worst case scenario would be and see if there's a way to mitigate gain.

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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 914 votes
    1mo

    Kurtis, the answer is no — once day 45 passed your identification list locked, and anything you buy that wasn't on it won't count as replacement property for this exchange. I'd add one caution to what's been said above: a failed exchange isn't necessarily just the cost of the intermediary's fee. You recognize the gain, and depending on how it gets reported and paid you can pick up interest and penalties on top, so it's worth running those numbers now rather than at filing time. The piece most people miss is timing — if your exchange period runs into next year and the intermediary releases your funds then, a failed exchange can often be reported on the installment method so the gain lands on the later return. That isn't automatic; it depends on whether you genuinely intended to complete the exchange, whether the agreement actually restricted your access to the money, and whether you elect out. For next time the fix is cheap: name backup properties, or if nothing on the list appeals, don't submit one at all, since most exchange agreements let the intermediary release the proceeds after day 45 rather than tying them up for the full 180 days. Your specific dates and documents drive all of this, so have your own CPA or tax advisor review the exchange agreement before you file.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    1mo

    Kurtis, if the 45-day identification period has already expired, you generally cannot replace the property you originally identified with a completely new one and still have that new property count for the same 1031 exchange.

    The IRS requires replacement property to be identified in writing within 45 days after the relinquished property is transferred. An identification can be revoked or changed during that 45-day window, but once the period closes, you’re generally limited to the properties that were properly identified during that period.

    So if you identified only one property and no longer want it, buying a different property now would generally not qualify as the replacement property for this exchange. You could still buy it, but the original 1031 may fail and the gain from the property you sold could become taxable.

    If you originally identified multiple properties within the IRS rules, you may still have another eligible option among those identified properties. The replacement property also generally has to be acquired within 180 days of the sale, or by the applicable tax-return due date if earlier.

    I’d call your qualified intermediary before making any move here because at this stage the exact identification letter matters a lot.

    Feel free to DM me, I’d be happy to send over a couple 1031 resources that might help.

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