You may remember from our previous blog that a 1031 exchange or the U.S. Internal Revenue Service Code 1031 is the deferment of capital gain taxes by investors on commercial properties used in trade or business. If you don’t recall this topic, you may want to read our previous article titled “What is a 1031 Exchange?“ before reading further.
In regards to 1031 exchanges, there are limitations as previously mentioned in our other blog and some of those limitations apply to the amount of time you have in order to complete an exchange.
45-Day Identification Period
There is a tight period of time in which you as a CRE property owner/investor needs to make sure action is being taken. According to Equity Advantage, investors participating in a 1031 exchange must provide “an unambiguous description of the potential replacement property, on the 45th day before or after closing on the relinquished property,” this is known as the 45-Day Identification Period.
It’s important to remember that these time restrictions are tight and there is no way around them. According to 1031 Corp., extending the 45-Day Identification Period is impossible, but this doesn’t mean you shouldn’t make use of the time that you do have. Before your 45-day period begins, take action and look for potential replacement properties before selling your current property.
180-Day Exchange Period
This “unambiguous description” can come in the form of a simple list with 3 potential properties, a legal description of the properties, or their addresses. In total an investor has 180 days from closing to acquire a new replacement property, this is known as the 180-Day Exchange Period, which runs alongside the 45-Day Identification Period.
Rules
There are a number of rules that apply to both the 45-Day Identification Period and the 180-Day Exchange Period. Some of which include, the 3-property rule, the 200% rule, and the 95 rule, which we will cover in more detail in a later blog titled, “1031 Rules”. But what should be noted here, is that in order to benefit from a 1031 exchange, you MUST abide by these rules. There is no bending of the rules, these rules must be followed in order to meet all of the IRC’s requirements in order to reap the benefits from a 1031 exchange.
For more readings visit: Equity Advantage and 1031 Corp.
Want to learn more about 1031 Exchanges? Stay tuned, we’ll be blogging more about 1031 Exchanges in the days to come.
Read all the articles in our 1031 Exchange series here: https://www.mynoi.com/category/1031-exchange/