1031 Exchange timeline & DEADLINES TO REMEMBER
remember these dates for your 1031 exchange
1031 EXCHANGE DATES TO REMEMBERR
IMPORTANT 1031 EXCHANGE DEADLINES TO REMEMBER
All of the 1031 exchange timeline deadlines are in calendar days, NOT business days. This includes weekends and holidays!
Before you close on your relinquished property, you must contact a QI (like us!) to begin setting up your exchange for you. Once you close on your property, it is too late to start the exchange if you have not done so already.
DAY 1 - PROPERTY SALE CLOSING
Day 1 refers to the day of closing on the relinquished property. Closing Day is your first 1031 exchange deadline & where the official timeline begins! You must start your 1031 exchange before closing on the sale of your relinquished property.
DAY 45 - IDENTIFY REPLACEMENT PROPERTY
Your second 1031 exchange deadline is to submit your 45-day replacement property identification form to your QI. Remember, you can list up to 3 properties you would like to purchase as your replacement. You may buy more than one property, as long as you properly list it on your identification form. If no 45-day form is turned in by day 45, the opportunity to do a 1031 exchange is gone, and the QI returns the exchangers cash to them on day 46. The exchanger will pay tax on the sale of the relinquished property as a standard property sale.
DAY 180 - REPLACEMENT PROPERTY PURCHASE CLOSING
You must close on your replacement property purchase on or before the 180th day after closing on the sale of your investment property. If you have not closed on your replacement property yet, today is the day. By day 180, you should have closed on the purchase of your replacement property and hold the title. If you close on day 181 or after that, your exchange will not be accepted by the IRS! The IRS will not give any extensions.
BEFORE CLOSING ON THE SALE OF YOUR RELINQUISHED PROPERTY
WHEN DOES THE EXCHANGE START?
WHEN SHOULD YOU CONTACT US?
Once you start considering selling your investment property and doing a 1031 exchange, we recommend you give us a call. We think it's essential that you understand what a 1031 exchange is and how it works. We take the time to discuss this with you to make sure you are prepared to begin once you enter into a contract. Once you enter into a contract, that's when we start preparing the exchange. Make sure you contact us before closing to assure the 1031 exchange begins properly.
WHEN DO I NEED TO START MY EXCHANGE?
Your 1031 exchange timeline starts when you enter into the sales contract. You must have the proper documentation and agreements in place before closing. Remember, if this is not ready before closing, you can't complete a 1031 exchange. If you close before beginning the 1031 exchange, the IRS considers that as a period when you had access to the cash from the sale. We handle all necessary legal documentation and agreements that show you are entering into a 1031 exchange.
WHAT HAPPENS ON THE SALE CLOSING DAY?
The documents we prepared are distributed to all those involved (lawyer, title company, etc.) notifying them that this transaction is part of a 1031 Exchange. We provide instructions to ensure the transaction follows the 1031 exchange guidelines. On the day of closing, the purchaser wires the funds from the sale of the relinquished property to us to hold as the Qualified Intermediary, QI. We will hold the funds until it is time to close on the replacement property.
45 DAYS AFTER CLOSING ON THE SALE OF YOUR RELINQUISHED PROPERTY
1031 Exchange Timeline - REPLACEMENT PROPERTY IDENTIFICATION
AFTER YOU CLOSE ON YOUR PROPERTY SALE
From the day of closing, you have 45 days to identify up to three properties that you would like to purchase as your replacement property. You can submit these properties very quickly by filling out a form provided to you by us, your Qualified Intermediary. On this form, the requirement for listing the property is that it should be listed clearly enough with an address so the QI can get to the front door of the property.
CAN I CHANGE THE PROPERTIES I IDENTIFY?
What if you list three properties, but two of them have suddenly become unavailable? The 45-day form can be resubmitted as many times as needed as long as it's before day 45. The last copy received by day 45 is the one that the IRS views as eligible replacement properties. If some of the properties on your original form are off-market, you can identify new properties as long as you are still within the 45-day identification period.
CAN I IDENTIFY MORE THAN 3 PROPERTIES?
You can identify more than three properties but there are strict rules for that scenario. You will then be required to follow the 200% rule and potentially the 95% rule. The rules imposed depend on the fair market value of the identified replacement properties. We try to steer our clients away from this situation, as it can turn out to be a pretty undesirable one. We explain more about these rules below to understand their implications.
THE 200% RULE
The 200% rule tells us that you can list more than three properties, but the total value of all properties listed must not exceed 200% (or 2X) the amount of the relinquished property. Here is an example scenario. Your relinquished property sold for $200,000 and you chose to list four properties on your 45-day form. The combined total fair market value of all four properties must not exceed $400,000. Even further, if the fair market value of those properties exceeds 200%, then the 95% rule applies.
THE 95% RULE
If you exceed the combined total fair market value of your relinquished property by more than 200%, then the 95% rule applies. The 95% rule requires you to purchase 95% of the total cost of all the properties listed. So Let's say you sold your relinquished property for $200,000. You decide to list five properties on your 45-day form, and the total combined fair market value of those five properties was $1,000,000. As you can see, that is over the 200% rule. Now you must follow the 95% rule and purchase at least $950,000 of those properties. Because of these two rules, we suggest staying within the three property limit to avoid falling into the 200% or 95% rule.
180 Days After Closing ON THE SALE OF YOUR RELINQUISHED PROPERTY
1031 exchange timeline - 180 DAY EXCHANGE CLOSING PERIOD
COMPLETING YOUR 1031 EXCHANGE
From the date of closing on your relinquished property, you have 180 days to close or get into title, on your replacement property. The replacement property you choose must be one that you identify on your final 45-day form. Should you decide to purchase a property that you did not identify, the exchange will no longer be valid. Additionally, the title on the replacement property must mirror the title on the relinquished property. This requirement means that the taxpayer on the title to the old property must match the taxpayer to take title on the new property.
PREPARING FOR YOUR PURCHASE CLOSING
When preparing to close on your replacement property, your QI will prepare all legal documentation to complete the exchange. The QI works with all parties involved, so everyone is aware that this property purchase is part of a 1031 Exchange. When it is time to close, the QI wires all exchange funds from the sale of the relinquished property. The QI wires these funds directly to the title agent handling the closing for the purchase of the replacement property.
IS THE DEADLINE FLEXIBLE?
You have 180 days from the day of your property sale to complete this part of the 1031 exchange. Should you close on day 181, the IRS will no longer accept your transaction as part a 1031 exchange. Remember that this is 180 calendar days and not business days. You have no flexibility to accommodate holidays or any other potential conflicts.