Blog

Subscribe to Our Blog

Subscribe to Email Updates

Featured Post

Recent Posts

Important Considerations When Starting a 1031 Exchange Late in the Year

FGG is pleased to provide this timely guest blog written By Lisa Villarreal, Business Development Manager at First American Exchange Company. First American Exchange Company provides 1031 exchange Qualified Intermediary services nationwide and is a direct subsidiary of First American Title Insurance Company.

SHOULD YOU FILE A TAX EXTENSION?

A 1031 exchange is reported on the tax return for the tax year in which the exchange begins, i.e., the tax year the relinquished property is transferred, using IRS Form 8824. The exchange period is the shorter of 180 days or the due date of the taxpayer’s tax return. If an investor's exchange transaction started late in 2019, he may need to file for an extension using Form 4868 in order to receive the full benefit of the 180-day exchange period and reflect the entire exchange on the appropriate tax return.

FILING AN EXTENSION TO GET THE FULL BENEFIT OF THE 180-DAY EXCHANGE PERIOD

In a 1031 exchange, the taxpayer must acquire all replacement property by the earlier of the date that is 180 days from the date the relinquished property closes, or the date the tax return for the year in which the relinquished property closed is due, including extensions. This means that for exchanges where the relinquished property closes late in the year (in 2019, from October 18th until the end of the year), a calendar year taxpayer must get an extension of the tax filing deadline in order to benefit from the full 180 day exchange period. For example, if the relinquished property closes on December 1, 2019, and the taxpayer does not get an extension on the filing of his return, the taxpayer will only have until April 15, 2020 to acquire all replacement properties. If the taxpayer gets an extension, however, he will have until May 30, 2020 to acquire all replacement properties.

If the exchange is incomplete, the sale will need to be reported as a taxable event.

WHEN YOU WANT THE EXCHANGE PERIOD TO EXPIRE EARLY

There may be some situations in which the taxpayer benefits from a shorter exchange period. For example, sometimes exchanges are started late in the year and completed the next year before April 15th (or the applicable tax filing deadline). The investor may have identified three replacement properties and acquired one, but there is still some available cash. The qualified intermediary is required to hold the remaining cash until the sooner of when all replacement properties are acquired or the end of the exchange period. In order to get his cash early, an investor can decide not to file an extension. In that case, the exchange period will end on April 15th, and the intermediary will be able to release any additional funds on the following day. If the taxpayer were to instead get an extension to the filing date of his tax return, the intermediary would be required to hold all remaining funds until the sooner of the expiration of the 180-day exchange period or the extended due date for filing the tax return.

REPORTING AN INCOMPLETE OR FAILED EXCHANGE

Sometimes an investor starts an exchange but is unable to acquire any replacement property. Other times an investor may acquire some replacement property but have remaining cash which will be taxable. In both of those situations, if the investor starts the exchange in one year and receives the money in the following year, the cash boot received can be treated like an installment sale. In other words, any cash received in the second year can be reported in that year rather than the year the relinquished property closed.

MULTIPLE EXCHANGES

If an investor completes more than one like-kind exchange during the tax filing year, he can file a summary Form 8824 and attach his own statement showing all of the information requested on Form 8824 for each exchange.

ADDITIONAL RULES

Certain rules may apply to your particular exchange transaction. For example, if you transferred your relinquished property to a related party as part of your 1031 exchange, you must file Form 8824 with your tax return for not only that year, but for the two years following the exchange. For taxpayers who are subject to filing a state tax return, you must comply with that state’s filing requirements. Also, additional filing requirements may apply to certain specialized transactions such as reverse exchanges or multi-asset exchanges.

Always check with your tax advisor to make sure you are complying with the requirements for your unique transaction.

Download Form 8824

Download Form 8824 Instructions

Download Form 4868

For more information on 1031 Exchange tax deferral strategies, please contact First Guardian Group at 866-398-1031 or info@FirstGuardianGroup.com.

 Download and read our latest ebook "Tax Deferral Strategies " below!

New call-to-action

 

Paul Getty

Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $2 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student and senior housing. Paul Getty’s transaction experience includes buy and sell side representation, sourcing, and structuring of debt and equity, work-outs, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions. Paul Getty also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals.

Prior to founding First Guardian Group/FGG1031, Paul Getty was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 25 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion-dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M.

Paul Getty holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. He is a member of the Institute of Real Estate Management (IREM), a Certified Property Manager Candidate (CPM), and a member of the US Green Building Council. Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered representative with LightPath Capital Inc, member FINRA /SIPC.

Paul Getty is a noted speaker, author, and actively lectures on investments and sales and management related topics. He is the author of The 12 Magic Slides, Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors, and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.

Your Comments :

subscribe-property-listings-cta-1