TIME RESTRICTIONS ON LOCATION AND ACQUISITION OF REPLACEMENT PROPERTY

When structuring a deferred §1031 exchange, there are two critical time limitations: the period of time during which the taxpayer must identify their replacement property, and the period of time during which the taxpayer must acquire their replacement property.  The replacement property must be:

(a)        Identified within 45 calendar days after the date of the sale of the relinquished property (the identification period); and

(b)        Acquired on or before the earlier of (a) midnight on the 180th calendar day after the date of the transfer of the relinquished property; or (b) midnight on the due date of the taxpayer’s tax return, including extensions, for the year in which the transfer of the relinquished property occurred (the exchange period).

            Note: The 45-day identification period and the 180-day exchange period run concurrently.

The dual rule determining the length of the Exchange period means that if an individual taxpayer’s relinquished sale closes on October 18th or thereafter, she may not have the entire 180-day exchange period to locate and acquire suitable replacement property unless she files an extension for her individual income tax return.

The tax deferral rules applicable to like-kind exchanges will not apply to the transaction if these requirements are not met.  There are almost no extensions of the 45-day and 180-day periods, including no allowance for Saturdays, Sundays or holidays.  Generally, no hardship or other mitigating factors will excuse a failure to satisfy these requirements.  The only exceptions to this rule are an extension for presidentially declared disaster areas which include a specific extension for Section 1031 exchanges and the presence of taxpayers in certain combat zones.  Consequently, if the 45-day identification period or the 180 day exchange period expires on July 4th, the taxpayer is responsible for ensuring the property is identified or acquired prior to midnight on that day.