The Section 1031 exchange procedure is one that should be started with some planning and forethought; the process presents the unsuspecting real estate investor with a great opportunity to make a wrong move. With this in mind, you may be a bit scared to start the 1031 exchange process without the certainty that you will be able to see the process through to completion. However, in reality, the risks involved in a trade are not as intimidating as they may seem at first.
Beginning the 1031 process is by no means a total commitment; In fact, many of the smartest real estate investors who are selling an investment property will begin the process of a 1031 exchange just to leave the exchange option open. This is because if an investor starts down the path of an exchange, there are several possibilities to walk away and simply sell the property, whereas going down the path of a sell-out completely eliminates the option of a 1031 tax exchange.
There’s really no reason to worry about changing your mind during the course of a trade. The only thing you really need to do to keep your options open is to be aware of the time frames involved in the process of a trade, as they will be the main determining factor of when you will have the opportunity to receive the income. that would have been transferred to your replacement property if you had made the exchange.
After closing the sale of your relinquished property, the proceeds of the sale are sent directly to your chosen intermediary. Once this has occurred, the earliest time you can recover your earnings from your Qualified Intermediary is after a 45-day period, which is the cut-off date for a suitable replacement property to have been identified. If 45 days go by without you logging in, the exchange will end and you will be able to receive your earnings. If you made an ID before you decided you want to end the trade, you can revoke the ID before the end of the 45-day period and the result will be the same.
If you have passed this step in the process, your next chance to recoup your earnings is 180 days after the end of the 45-day period, which is the deadline to close on a replacement purchase. property. However, if your federal income tax return occurs during the 180 days, you can shorten this waiting period. As long as you do not request an extension on your return, you can, at this point, tell your qualified broker that the trade is over and receive your profit.
At the end of the day, it’s always a good idea to be prepared for any contingency that may arise; Starting the 1031 process when you are not sure what will happen in the future can, in fact, be a good way to keep all your options available. As long as you are aware of the timelines involved in the 1031 process, you can be free to change your mind regarding your exchange should there be a change in your circumstances.
