Q4 Planning for 1031 Exchanges: What to Know Before Year-End

If you're selling investment property in the last few months of the year, there's one timing issue to plan for before your sale closes: your tax return due date can cut your exchange period short.

The tax return due date rule

Your exchange period ends 180 days after your sale closes, or on the due date of your tax return for that year, whichever comes first. For most of the year, 180 days comes first and this never matters. In the fall, it does.

For individuals, a sale that closes on October 17 reaches day 180 on April 15 of the following year. Any sale after that date runs past the April 15 due date. Without an extension, your exchange period would end on April 15, not on day 180.

The fix is simple: file an extension for that tax year. With an extension in place, you have the full 180 days. You have up to and including day 180 to complete your replacement purchase or purchases.

If the property is owned by a partnership or S corporation, the return is due March 15, so this applies to sales closing after about mid-September.

Talk to your CPA before the sale closes

Your CPA should know you're doing an exchange so the extension is filed on time. They can also tell you how the exchange affects your tax picture for the year, including what happens if you plan to keep some of the cash.

If your exchange will run into the next year, the sale is still reported on the return for the year it closed. That's another reason to make sure your CPA has the full timeline.

Deadlines don't stop for the holidays

The 45-day and 180-day periods count every calendar day, including Thanksgiving, Christmas and New Year's. If your 45th day falls on a holiday, your identification is still due that day.

The holidays can also slow down everyone else involved. Lenders, appraisers, title companies and sellers often have reduced schedules in late November and December. If you're buying during that window, plan for things to take a little longer.

Starting early still matters most

The most important step hasn't changed. Your exchange has to be in place before your sale closes, with the proceeds sent directly to us. We always recommend starting your replacement property search before your sale closes, too, so your 45 days are spent narrowing down options instead of starting from scratch.

Selling this fall?

If you have a sale on the calendar, connect us with your closing agent and we'll get your exchange set up. We can typically have it set up the same day.

APX 1031 is a Qualified Intermediary. We don't provide tax or legal advice; talk with your CPA or attorney about your situation.