As an exchange consultant, I receive the same sad phone call at least once a month: “I just sold my investment property and I’d like to do a 1031 exchange.” Unfortunately, once the closing has happened and the seller receives the proceeds- it’s too late to do a 1031 exchange. They will be stuck paying the tax that they could have deferred (if they had just called me earlier). Generally, that’s about 25% (or more) of their gain going to the IRS instead of giving themselves a higher reinvestment capital by deferring the tax. The same is true for buyers- if they want to defer taxes with a reverse 1031 exchange, they must get in touch with a Qualified Intermediary (QI) like All States 1031 prior to the closing.
In fact, I get calls literally from the closing table: “I’m at the closing- is it too late to do a 1031 exchange?” No- it’s not too late to do a 1031 exchange! I can draft the necessary 1031 documents very quickly and it is still possible to defer taxes at that point with a 1031 exchange (and still close on time!). Planning ahead is the best way to ensure a seamless 1031 exchange. Often times, I receive calls from people who are merely thinking about selling their investment property. I am happy to answer any questions or give complimentary consultations. The more time someone has to plan ahead, the better they will fully understand all of the 1031 rules and the exchange process.
For example, many exchangers think that 45 days to identify potential replacement properties is not enough time. This “exchange clock” starts ticking once the exchanger sells their relinquished property. However, if the exchanger plans ahead, they can start looking for potential replacement properties before they even sell, therefore giving them much longer than 45 days to make such an important decision. I’ve seen many organized exchangers coordinate their sale closing and purchase closing to be within days of each other- that way they don’t even have to worry about the 45 or 180 day time limits.
If you are considering buying or selling investment property, or for more tips on planning ahead for a 1031 exchange, please call me toll free at (877) 395-1031 extension 217 or e-mail me at AHart@AllStates1031.com
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