Ask the expert: the 1031 timing mistakes that turn an exchange into a taxable sale
I asked Theresa Quartaro, a Qualified Intermediary at IPX1031 in Houston, which 1031 timing mistakes cost investors the most. Her answers, in short:
The 180 days are hard calendar days. You get 45 days to identify the replacement and 135 more to close, with very strict timelines. You can find the replacement and put it under contract before you sell, but once the sale closes, the deadline to close on the replacement is firm.
Miss a deadline and the exchange fails. Her office sends two notices before day 45 and another before day 180, but there are no extensions. A failed exchange gets its funds returned the next business day after day 180 and is reported as a sale, with tax due when you file.
Bring in the intermediary early, especially if a partnership or LLC owns the property. If the sale closes with no exchange set up, it's too late afterward.
Have the replacement loan lined up before you sell. A slow loan can put the whole exchange at risk. Your lender needs to know the 180-day deadline and be ready to close quickly, and debt replacement should be worked out with your intermediary and lender up front.
Talk early. A 1031 is for selling investment property and rolling the proceeds into the next one. Get every question answered before you sell, not when you're ready to close.
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For those who've done an exchange: what part of the timeline came closest to tripping you up, the 45-day identification or getting the replacement loan closed?
