If the sale of your Relinquished Property closed on or between October 18, 2020 and December 31, 2020, the standard 180-day exchange period will be shortened. However, you can file for a tax extension by April 15, 2021 to obtain a full 180 day exchange period. If you do not file for an extension, the last day to close on your Replacement Property(ies) will be April 15, 2021. Internal Revenue Code § 1.1031(k)-1(b) (ii) – offers the following explanation:
“(ii) The exchange period begins on 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) for 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 simpler terms, the exchange must be completed within 180 days of the sale of the property UNLESS your tax filing deadline (April 15th for most taxpayers) occurs first, in which case, the exchange period will instead expire on April 15th.
Here’s an example: an investor sells property on December 11th, 2020, as part of a 1031 exchange. The 180th day thereafter is June 9th, 2021. Unfortunately, the investor does not have until June 9th to complete the 1031 Exchange transaction; the April 15th tax filing deadline occurs before the 180th day of June 9th. If, however, the Exchanger requests an extension of time to file his tax return, he will get the benefit of a 180-day exchange period. You can find the guidelines on filing for an extension here.
If your relinquished property closed between October 18th and December 31st of 2020, don’t lose out on your full 180-day exchange period. Make sure you file for an extension on or before April 15th, 2021. As always, be sure to consult with your tax advisor and attorney on this and other 1031 Exchange-related transactions. Please speak with your tax advisor for more details.