Are You Starting a 1031 Exchange Late in 2012? You may need to file for an extension for your tax return


Internal Revenue Code Section 1031 allows a taxpayer to dispose of real estate (the “relinquished property”) and acquire replacement real estate (the “replacement property”) on a tax deferred basis. This is referred to as a “1031 exchange” or a “like-kind exchange.”

Filing your tax return ends the exchange period -

A 1031 exchange is reported on the tax return for the tax year in which the relinquished property is transferred (using a specific form that requires the input of detailed information). The taxpayer must acquire all replacement property by the earlier of 180 days after the closing date of the relinquished property (the closing date is counted as day 1), or the due date, including extensions, of the tax return on which the sale of the relinquished property is reported. This means that for 1031 exchanges where the relinquished property closes late in the year (from approximately October 15 until the end of the year), the taxpayer must get an extension of the tax return filing deadline in order to benefit from the full 180-day exchange period.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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