Is there a loophole for the 180 days time frame?

Question

Hi guys,

is there a loophole for the 180 days time frame?

Grant Cordon was saying there is a trick to postpone it, but never explained what kind of trick...

Does anybody know?

Thank you

Kasing Ng · Answer

Hi Mary, the short answer is no, there's no loophole that just buys you more than 180 days. It's a hard deadline in the law, and if you miss it the exchange fails and you owe the full tax. So be careful with anyone promising a secret trick around it.

A couple of real things probably got turned into that "trick":

1. if you sell late in the year, your 180 days can actually get cut short by the tax filing deadline in April. Filing a simple extension protects your full 180 days. It doesn't give you more than 180, it just keeps you from losing any.

2. when there's a federally declared disaster where you or the property are, the IRS can officially push both the 45-day and 180-day deadlines out. That's a real rule, not a trick, and only in that situation.

If the real problem is just running out of time to find a replacement, the usual fix is to line up a backup property early (a DST is common) so you always have something to close on. Worth running your specific timing past a QI before you count on any of it.

Dave Foster · Answer

@Mary Jay, as others have mentioned, there really isn't a loophole for the 180 day deadline for the 1031 exchange. Other than filing for an extension or a FEMA disaster. Or getting some time shaved off if the tax filing date intervenes. However, there is no penalty for not completing a 1031 exchange. Your exchange will die on day 181 and you would pay the tax like you normally would. This is one of the reasons why investors are encouraged to be very proactive in their 45 and 180 period because the due diligence in finding solid replacement properties or their identification list and getting them under contract as soon as possible will relieve the stress of the time frames.

It can seem intimidating, especially if it's your first one, but most exchanges are successful, and you must work with a qualified intermediary, who will help guide you throughout the process.

Jason Malabute · Answer

There isn't really a loophole here. The 180 days is a hard deadline, and if you miss it the exchange fails and the gain becomes taxable. What usually gets called a trick is one of two things: if you close late in the year, your tax return due date can cut the 180 days short, so filing an extension lets you keep the full 180 (it doesn't add any extra days), and in a federally declared disaster the IRS can push the deadlines out. Beyond that, the best protection is lining up a backup replacement property early and getting your CPA and qualified intermediary involved before the sale closes. The exact answer depends on your facts, so check with your own CPA or tax advisor.

Ashish Acharya · Answer

Mary, I would be very careful with anything described as a “loophole” for extending the 180 day period. The 180 day replacement period for a deferred 1031 exchange is generally a statutory deadline, so there is not a normal planning strategy that simply gives you additional time after selling the relinquished property. IRS

There are other ways to structure a 1031, though. A reverse 1031 exchange can allow you to acquire the replacement property before selling the property you intend to relinquish. In that structure, the replacement property is generally held by an exchange accommodation titleholder while the exchange is completed. The IRS has a safe harbor for this type of arrangement, but it still has its own 45 day and 180 day requirements. IRS

So if someone is worried about finding a replacement property before their deadline, I’d have the CPA and qualified intermediary involved before the transaction starts, rather than trying to find a way around the deadline after the sale. A lot of 1031 planning is really about preparing before the clock starts. Feel free to DM me, I’d be happy to send over a few 1031 and real estate tax planning resources that may be helpful.

Is there a loophole for the 180 days time frame?

Is there a loophole for the 180 days time frame?

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