When you do a 1031 exchange you’ve only got 45 days after the closing of your relinquished property to identify your replacement property and 180 days total to complete the exchange. That rule was created by the IRS, with power granted by Congress to write the treasury regulations. With this time frame, the IRS was trying to constrain the number of people completing 1031 exchanges. These identification deadlines are hard and fast. Unless you’re impacted by a federally declared disaster, these are unwavering deadlines.
Reverse 1031 Exchange Benefits
So what are savvy real estate investors doing to avoid a potential failed 1031 exchange? They’re finding their replacement property first, and lining up a sure thing whenever possible. This is otherwise known as a reverse 1031 exchange.
Logistically some sellers are entering into a purchase agreement with their buyer and saying “buyer, I’m happy to sell to you at this price, but I as the seller get to control the closing date.” This allows the seller to hold off on the closing until they’ve got a replacement property lined up. That works great when you’re not in a rising interest rate environment. But right now, we are in a rising interest rate environment where banks are not going to let potential borrowers get a rate lock for a long period of time. As a result, there is often a tension between the buyer and seller where the buyer is chomping at the bit to close the deal and the seller is reticent to take the plunge until they have a sure thing lined up.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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