Practical 1031: What are the Timing Requirements for an Internal Revenue Code Section 1031 Exchange?

Q. What are the timing requirements for an Internal Revenue Code Section 1031 exchange?

A.  Since few if any exchanges are simultaneous (that is, the sale of the old property and the purchase of the new property do not occur on the same day), the Code Section 1031 safe-harbor regulations provide for two separate timing requirements, which run concurrently (not consecutively) from the day the old property is sold by the taxpayer.

Within 45 days of the date of sale, the taxpayer must “identify” the property or properties that the taxpayer wants to purchase as replacement property (the number of properties that can be identified will be addressed in a future 1031 Q&A). The identification must be made to the qualified intermediary (“QI”) that is hired for the exchange. The QI will provide a form that is completed, signed and sent to the QI by the end of the 45-day identification period. The replacement property need not be under contract to be identified. The 45-day period is a hard date and is not extended by weekends or holidays. On occasion of a natural disaster or a 9-11-type event, for example, the IRS may provide extensions to impacted taxpayers.

The second timing requirement is the replacement period. A taxpayer must actually close on the new replacement property within 180 days of the date of sale of the old property. This 180-day period is also a hard date and is not extended by weekends or holidays. The fact that the seller of replacement property did not show up at closing or the mortgage lender caused the delay does not excuse a failure to comply. Almost no good excuse will pass muster, which is why the purchase of new replacement property should be scheduled sufficiently in advance of the 180-day deadline to leave room for managing contingencies. As noted above, on the occasion of a natural disaster or a 9-11-type event, the IRS may provide extensions to impacted taxpayers, but do not count on it.

Of note, the 180-day period may be cut short by the time for filing the tax return for the year in which the old property is sold. For example, say that the old property is sold by a partnership on November 1, 2024. The 180-day period would end on April 30, 2025. But if the partnership’s tax return is due on March 15, 2025, the 180-day period is cut short and ends prematurely on March 15, 2025. The fix is a simple one, and that is to file for timely extensions of the time to file the partnership tax return to at least April 30, 2025.

While a lawyer or QI may mark the expiration of these dates for their clients, taxpayers are ultimately responsible for verifying and monitoring their own dates.