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1031 Exchange Time Limit Extension: How to Get More Time

Maura Snabes, Esquire, Principal, CES®, NTP®
February 15th, 2024

Anyone who knows anything about a 1031 tax-deferred exchange, knows that there are two critical deadlines that never change (unless you have a federally-declared disaster)—the 45-day identification period and the 180-day acquisition period. But, are there situations in which one can somehow extend these deadlines? The answer: Maybe.

I have had taxpayers that taken advantage of the opportunity of two distinct exchange periods when effectuating a reverse exchange. I’ve changed the facts to simplify the math:

  • Taxpayer (TP) owned Relinquished property (RL) in Texas. Value: $2million.
  • TP wanted to buy Replacement property (RP) in Michigan worth $1million and had to close on this before he sold his RL.
  • TP would be trading down in value and therefore, would have some capital gains taxes.

TP had a couple of options

1.

TP could acquire more than just the one RP before it closes on the sale of the RL in Texas.

This would mean that the Exchange Accommodation Titleholder (EAT), the entity taking title to the RP, has to acquire both/all RPs prior to closing on the sale of the RL, and all of those transactions had to be done within 180 days of the date of the first RP acquisition.

For example: RP acquired 2/1/24; RL ID needed 3/17/24; any other Identified RPs acquired by 7/30/24; RP period expires 7/30/24.

2.
TP could structure the exchange as a partial-reverse, partial-forward exchange.
  • EAT acquires the RP in MI on behalf of the TP for $500,000. 
  • TP identifies the RL within 45 days of the closing on the RP. The identification would not be 100% of the RL—it would be whatever percentage/value would be necessary to fully defer the gain when he acquired the Replacement property that the EAT just purchased. 
  • TP closes on the sale of the partial interest in the RL. 
  • RP conveyed back to TP and reverse exchange is completed. 

Deadlines for the reverse exchange
RP acquired 2/1/24; RL ID needed by 3/17/24; RP period expires 7/30/24.

The balance of the percentage/value of the Relinquished property would then be set up as a forward exchange. The clock for this forward exchange would not start running until closing on the sale of the Relinquished property. 
  • TP identified 50% of the value of the RL in Texas in the reverse, so has 50% left to use as RL in the forward exchange. 
  • TP closes on the sale of the partis interest in the RL. 
  • TP identifies (another) RP within 45 days of the closing on this interest in the RL. 
  • TP closes on the acquisition of the RP properly identified. 

Deadlines for the forward exchange on the 50% interest
RL closing 7/29/24; RP ID needed by 9/12/24; RP period expires 1/25/25 or the due date of the TP’s tax return, including extensions, whichever is earlier. 

MAURA A. SNABES
Esquire, Principal, CES®, NTP® Ms. Snabes practices in the area of Real Estate and Corporate Law. Maura has been the corporate legal counsel for a title company since 1994. She is a Certified Exchange Specialist as certified by the Federation of Exchange Accommodators and is the founder and co-owner of CXS.

Conclusion

While the situation is unique and may not be an option for every taxpayer, it gives a viable option for those who find themselves in this situation. Call us to see how we can help you with your next 1031 exchange. 
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