1031 Exchange Cancellation Fees

If you call a qualified intermediary on short notice and ask them to prepare a set of 1031 exchange documents, they're going to jump through a lot of hoops – collecting information, reading the purchase agreement and title report, interfacing with the escrow and title company, and generating some very technical 1031 documents that are specifically tailored to your transaction.

Cancelling a 1031 Exchange at the Last Minute

What if the seller decides to not do a 1031 exchange after having this fire drill to prepare their 1031 documents? That's fine - you don't have to do a 1031 exchange. It's a free country. But you probably have a moral and perhaps legal obligation to compensate the qualified intermediary for stopping everything and working exclusively on your transaction to get the 1031 prepared.

It's common if the intermediary has prepared, circulated, and sent out your 1031 documents for the intermediary to charge a cancellation fee if, before the closing of the relinquished property, the taxpayer decides not to proceed with the 1031 exchange.

• Start Your 1031 Exchange: If you have questions about 1031 exchange cancellation fees, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

How to Unwind a 1031 Exchange

Sometimes taxpayers contemplating a 1031 exchange will say “what if we don't identify any replacement properties, or what if we can't jump through the hoops - how do we unwind a 1031 exchange?”

Set Up the Exchange

At the beginning of this process you may not have all of the mysteries solved, but you know that you want to keep your options open and you want to keep them open as long as possible.

So the first thing to do is to set up the 1031 exchange before the sale of your old property so that the proceeds don't go to you and become taxable immediately, but instead go to the qualified intermediary.

Then you have 45 days to identify replacement properties. So you can use all of the time before closing and 45 days thereafter to figure out if this is something you want to do. If it's something you want to do, you’ll identify replacement properties to keep hope alive for the remaining 135 days in your exchange period.

If You Don't Identify

If you don't identify no big deal. We'll return the exchange funds to you on the next business day after the 46th day and get you your exchange funds back and you'll just pay taxes on it as if it was a taxable sale. The most you're out is a little bit of brain damage and the minimal exchange fee that we would have charged at the first closing.

Keep all of your options open as long as possible. Investigate all of these potential outcomes and hopefully you get the most tax-efficient result at the end of this process.

• Start Your Exchange: If you have questions about unwinding a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

What Happens if I want to Cancel my 1031 Exchange?

In this 1031 FAQ video, Jeff Peterson talks about what to do if you want to cancel your 1031 exchange at any point after starting. Watch more 1031 educational videos here.

• Start Your 1031 Exchange: If you have questions about starting and stopping 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved

Can You Cancel a 1031 Exchange after Starting the Process?

Sometimes taxpayers are on the fence, and they’re not sure what they want to do when selling property. What if you want to cancel your 1031 exchange after the process has started?

Keep your Options on the Table

If you’re on the fence I suggest keeping all available options on the table. If you sill your property and take the cash, you’re going to have to pay the taxes. So rather than take the cash, set up the 1031 exchange and use the first 45 days (the identification period) to evaluate your options and see if you want to designate any replacement property. During those 45 days you can decide if you want to continue with the 1031 or not. If you don’t identify any replacement property by midnight on the 45th day, your exchange will fail and your QI should return the funds to you on the next business day.

After the 45 Day Identification Period

If you want to keep your options open after the 45th day all you need to do is make a valid written identification of what your replacement properties may want to purchase and then use the remaining 135 days to do your due diligence. You are still in the driver’s seat and can decide if you want to close on those properties. If you do you can use your exchange funds at any time to acquire the identified property. If you don’t want to close on them, it’s not a big deal. All you need to do is wait until the end of the 180 day period and receive your unused exchange funds at that time.

Contingency Identifications

Sometimes taxpayers want to make an identification with a material contingency. For example, you can identify a property but state that you don’t want to buy it unless it’s re-zoned commercial by a specific date. If the property is not rezoned by that specified date then the identification is void. The beautiful thing about making a contingent identification is that it gives you the option to fold up your tent and terminate your exchange if the contingency doesn’t occur.

Here’s a note though – you can’t make it contingent upon your negotiating a purchase price with the seller because that’s a contingency that’s in your control. You could just negotiate in bad faith and make the contingency not occur. The contingency has to be something that’s out of your control like getting a permit approval or zoning control.

• Start Your Exchange: If you have questions about cancelling 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved