1031 Exchange Timeline
1031 exchanges are beneficial to real estate investors in many ways, but only if investors are diligent while navigating the complex process. Investors who fail to comply with the stringent requirements stated by the Internal Revenue Service (IRS) face disqualification of the tax deferral and other benefits successful 1031 exchanges provide. Strict adherence to the timeline set forth by the IRS can be challenging without the assistance of a trusted professional.
The 1031 exchange timeline provided by the IRS requires the following:
- The process starts with the date of sale of the investor’s relinquished property.
- A Qualified Intermediary (QI) accepts the proceeds of the sale.
- The investors has 45 days from the closing date of their relinquished property to identify at least 3 potential replacement properties.
- A legal description of the potential replacement property is required on or before midnight on the 45th day after closing on the relinquished property.
- Investors have a total of 180 days from closing to acquire the replacement property.
- The 45-day and 180-day periods run concurrently.
- If multiple properties are involved, the clock starts running on the closing date of the first property.
- The QI transfers the sales proceeds from the relinquished property to the seller of the replacement property within 180 days to complete the sale.