Question-Do I have to complete a 1031 exchange before filing my taxes?

October 17, 2014

Dear VanEd, I am in the middle of my own 1031 exchange and read in the 1031 Exchange course I am taking with you that the 180 day rule requiring me to complete the acquisition of my replacement property ends on the due date for my income taxes to be filed, but that is prior to the end of my 180 days! Is this correct? My closing is not scheduled until after I plan on filing my tax return for this year, so how do I handle this? And what do I tell a client who might be in the same situation?

Thanks for the help! -- Jordan


You are correct that the 180 days ends at either at midnight on the 180th day OR midnight on the due date for the income tax return for the year in which the property you relinquished occurs, whichever is earlier. However, there is something you can do that might help.

Before we continue, please remember that you should always seek appropriate legal and tax advice that directly relates to your own situation, and ALWAYS advise clients and customers to do the same. Nothing in this reply should be seen as legal or tax preparation advice. Seek counsel!   

If you file an extension of your taxes using the appropriate extension form (should be the 4868 form) then you may be able to extend the date that your taxes are due to the IRS and thus extend the date that you have to complete the acquisition portion of your 1031 exchange.

The key point here is that you HAVE to file for the extension of your tax return due date in order to extend your acquisition date to get the full benefit of the 180 day rule. You cannot assume that you are automatically eligible to extend your taxes, you have to actually file for the extension. This extends your due date and should allow you to complete your 1031 exchange.

What happens if you don't extend your tax return filing deadline? Then you probably need to complete the acquisition of your new property prior to filing your tax return. The general rule is that you will not want to file your return until you complete your 1031 exchange.

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