The 1031 regulation states that an exchange must be completed within 180 days OR the due date of the taxpayer’s Federal income tax return, whichever is earlier.  Relinquished properties closed between October 18th and December 31 would have less than 180 days without an extension of time on their tax return.  A taxpayer may file an automatic extension of their tax return, which would extend the time to file and allow the 180 days. 

There are no extensions to the 180 day rule.  If the exchange is not completed within the time stated above, the exchange is done and any portion of the exchange that is not complete is subject to capital gains tax.

By John Michel  Grant Thornton Real Estate Tax Services

1. Evaluate the form of any new business you begin.  How your business is organized can have a major impact on the amount of taxes you pay. The selection of the entity to own and operate the real estate is extremely important. Generally available are the S Corporation, C Corporation, partnership, limited liability company and REIT. Each has advantages and disadvantages as well as traps for the unwary.

2. Understand your partnership or LLC agreement.  Do you really understand your partnership or LLC operating agreement? Do you know if the allocations among members have “substantial economic effect”?  Do you know what a qualified income offset provision is? Do you understand minimum gain? In real estate matters, operating agreements typically address these and other important tax issues. Chances are your agreement is written with such issues in mind.  

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