Despite working with like-kind exchanges (LKEs) for a number of years, I never tire of discussing the basics. That’s because, despite structural intricacies, LKEs are, at their core, deadline and document driven. It’s these basics that build a strong foundation for understanding LKEs as they increase in complexity. For this month’s LKE tip, let’s consider some basics and focus on exchange deadlines.
LKEs generally consist of two separate deadlines:
- The 45-Day Identification Deadline and
- the 180-Day Completion Deadline.
The 45-day window is frequently referred to as the “identification period,” while the 180-day window is often called the “exchange period.” Note that both deadlines are triggered on the same date and run concurrently.
In a standard Delayed Exchange ( sells first and buys at a later date), both deadlines are triggered on the date ownership of the is transferred. Under the standard structure (buy first, sell later), both deadlines are triggered on the initial ownership transfer date of the . However, for both types, the counting of days doesn’t actually begin until the day after ownership transfer occurs.
In order to complete a valid , the replacement property must be both:
- properly identified by midnight on day 45 and
- received by midnight on day 180.
A couple other things to note:
- Both the 45- and 180-day deadlines include all calendar days, including weekends and holidays.
- The deadlines are absolute with extensions only allowed for:
- Presidentially declared disasters
- Terrorist or military actions
- Taxpayers serving in combat zones
Furthermore, as we approach the end of the calendar tax year, it is vital to fully understand the 180-day deadline. The regulations clearly specify the as:
“..the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) of the taxpayer’s return of the tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
In short, if you are participating in a , be sure to review the due date of your tax return and contemplate the need to apply for an extension of time to file. Otherwise, you might find yourself with an unexpectedly short exchange period.
Steve Chacon is Accruit's Director of Exchange Operations. He can be reached at 866.397.1031 x116 or stevec@accruit.com.
For more information on the 1031 Tax Code, visit our Exchange Library or view the following:
