The possibility of delaying tax payments within the real estate industry or even within qualified retirement plans, such as IRAs permits the investor to increase their wealth faster which will provide investors with more capital and income in retirement. Although many do not favor investing in real estate and instead prefer bonds, stocks and mutual funds 1031 exchanges are the most popular choice for real estate investors who want to tax-defer growing their investment.
Before we get into the text We must refresh our knowledge about 1031 exchanges. An exchange of 1031 is tax-deferral method that is covered under Section 1031 in the IRS tax code. It permits investors to defer tax payment by investing the proceeds from selling their existing property into an investment property.
While completing an exchange under the 1031 law provides investors with a variety of advantages, it has some strict regulations and rules that investors need to consider prior to and during an exchange. The most important rule and regulations is the IRS established exchange timelines, which obliges investors to complete their swap within 180 days. This article you’ll know more about the 180-day exchange timetable.
Let’s get started!
How Long Is The Closing Date On The Surrendered Property?
In accordance with IRS rules regarding exchanges of like-kind there isn’t a predetermined date for when you can sell the property you have sold. You are free to sell your previous property at any time you feel suitable. The ability to sell anytime is easy, it isn’t. The most effective method to destroy an exchange 1031 is to make it a mistake when selling it.
If You Don’t Hire An INTERMEDIARY QUALIFIED ON THE Sale Of Your Property, The 1031 IS NOT VALID .
Find a good one at a minimum of a weeks or so before you have closed for the purchase of your home. They will be responsible for receiving the proceeds from the sale, accounting of the sale, as well as the payments for buying following property, or DST. They are essential and cost about $1,000 per year for their services. If you’d like to speak about Qualified Intermediaries we suggest, contact us.
It is also important to note the date that you have sold the property you relinquished and the details of it since you’ll have to provide details about it when filling out Form 8824, or tax return.
What’s The Timeline On The Replacement Property?
Finding and closing on the new property or properties are just a few of the issues encountered when doing an exchange under the 1031 tax code. When you exchange your home in exchange for a comparable substitute property, there are some guidelines to follow regarding the timing.
In identifying a replacement property in the process of identifying a replacement property IRS will require you to find as many replacement homes within the 45 days following the closing of the property you have sold. Once you have identified the required properties you need to put it written, signed, and sent to your qualified intermediary. The document must describe the property’s address, the property’s description and the it should be typed.
Another important timeframe to be aware of when identifying the new properties would be the’180 days of timeline. The IRS demands that taxpayers making an exchange under 1031 must close on the replacement properties within 180 days of the date they sell their property that they had relinquished.
However, the timeframe for closing (180 days) can be affected when you file your tax return on income for the tax year that the sale of the property you relinquished was completed.
Does The Due Date Of Your Income Tax Influence The Timing Of Your Exchange?
Yes the date of filing your tax return can affect your exchange timeframe. If you’re doing an exchange in 1031 at the close this year say the 20th of December day then you’ll have to wait for 180 days to file your tax date. For the majority of taxpayers the 15th of April 15 is the day for filing taxes with the IRS. Even when you follow the IRS tax code says that you have to file your taxes in 180 days, it is possible that you could have less time when your tax return deadline occurs on the 15th of April the 15th. It is important to know the dates to be able to plan your tax return or ask for an extension of the due date.
Can I Get An Extension On Deadlines?
You could qualify for extension of the deadline for exchanges subject to certain conditions. When there’s a declared federal natural disaster or widespread or epidemic, then you might be qualified to extend. One example could be an IRS prolonging the timeframe in the Coronavirus Pandemic. It is recommended to check that with the CPA to find out whether you qualify to be extended.
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