What Are the Deadlines for Performing a 1031 Exchange?
Published August 2, 2024Share this article
If you're considering a 1031 exchange as a tax-advantaged exit strategy from your rental property, make sure you fully understand the risks. 1031 exchanges are riddled with rules, deadlines, and nuances with severe consequences if not correctly executed.Two critical deadlines you must meet are the 45-day rule and the 180-day rule, referring to the time frames you have to identify and close on a suitable replacement asset. Miss either of these windows, and you're in trouble.Below, we'll explain how both of these deadlines must be met and the consequences of missing them.
45-Day Rule
You have 45 calendar days from the sale of your property to formally identify a replacement property—this is known as the identification period. This deadline is strict—the IRS doesn't provide any flexibility, regardless of holidays or weekends.What does the IRS mean by “identify"? Identification must be formal and clear. You'll need to detail the address or name of the property as part of your designation—it's not enough to identify any single-family unit or apartment complex.The IRS provides a few additional rules you can use to optimize identification:- 3-Property Rule: You can identify up to 3 potential properties, but you must close on at least 1 of them.
- 200% Rule: You can identify as many properties as you want, but their aggregate fair market value can't exceed 200% of the market value of the properties you sell.
- 95% Exception: You can designate more than 3 properties with a total fair market value above 200% of the relinquished property, but you must acquire at least 95% of the value of the identified properties.
180-Day Rule
You have 180 calendar days from the sale of your property to close on a replacement property (or 135 calendar days from the end of the identification period). This deadline is also strict—and you may have even fewer than 180 calendar days. The official ruling states that you must receive title to your replacement property no later than the earlier of:- 180 days after the date of sale of the relinquished property or
- The due date of your tax returns (April 15, 2025) for the tax year applicable to the sale of your relinquished property
What Happens If You Miss the Identification Deadline?
There's little mercy if you miss these deadlines. Miss either, and you lose your tax-deferred status and must pay capital gains taxes on all your profits from the sale of your property.Seeking a Better Tax-Advantage Exit Strategy from Your Rentals?
If it sounds complicated, it’s because it is. 1031 exchanges frequently fail, and the consequences can be serious. If you make it to the other side, you're stuck with the same responsibilities of operating rentals as before: collecting rent, filling vacancies, and making emergency repairs—just to name a few.If you're seeking a simpler way to defer taxes and exit your real estate, consider the 721 exchange. The 721 exchange is a direct, tax-advantaged exchange for ownership in a professionally managed fund. One transaction. No deadlines. You'll preserve steady, diversified income and upside potential without having to manage marketing, maintenance, or tenants. For more information on the 721 exchange, read our article here or reach out to our team for a free consultation.Landlords, retire and minimize taxes.
Want more information?