The IRC Section 1031 requires that taxpayers acquire all replacement property by the earlier of 180 days from the sale of the relinquished property or their federal tax return due date for the year in which the exchange commenced. 

Therefore, taxpayers with exchange transactions starting in the 4th quarter of the calendar year, specifically those starting on or after October 18th, may have less than 180 days to complete their exchange, unless they file a tax filing extension. After completing their exchange, taxpayers can then file their federal tax return and report their 1031 exchange transaction on IRS Form 8824 any time before their extended tax filing date. 

When a tax return is filed, it typically cannot be amended to include the exchange or for an extension of time to complete the exchange. If you file the return prior to completing the exchange, the sale of the relinquished property should be reported as a taxable transaction. 

For calendar year taxpayers, this issue generally applies to those transacting exchanges that start after October 17th. For fiscal year taxpayers, the need for an extension may vary. For business entities that are calendar year taxpayers and have a tax filing date of March 15th, an earlier exchange start date applies (i.e., on or after September 16th). 

It would go without saying that exchangers should be discussing deadline issues and the effect of filing an extension with their tax advisors.  There is no cost for an extension but filing one doesn’t extend the time to pay taxes. 

IRS Website w information for filing an extension: https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return 

Our website has a calculator for counting days related to exchange deadlines.  www.directrust1031.co

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