DID YOU START A 1031 EXCHANGE BETWEEN OCTOBER 20 AND DECEMBER 31, 2011?

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 taxpayer’s federal income tax return is due, including extensions.  This means that for exchanges where the relinquished property closes late in the year, the calendar-year taxpayer may need to get an extension of the tax filing deadline in order to benefit from the full 180-day exchange period.

For example, if the taxpayer is an individual who closes the sale of his relinquished property on December 1, 2011 and he does not get an extension, he will only have until April 17, 2012 to acquire all replacement properties.  If he gets an extension, however, he will have until May 30, 2012 to acquire all replacement properties.  For corporations on a calendar-year tax basis that close their sale late in the year and do not apply for an extension, they will only have until March 15, 2012 to complete their exchange.  Even though the granting of the extension is “automatic” remember that you must still file with the IRS to claim it.  (Form 4868 for individuals)  

Once a tax return is filed, it cannot be amended to include the exchange or to obtain an extension of time to complete the exchange. If the exchange is incomplete, the sale will need to be reported as a taxable event.