Don't Commit To An Outright Sale - Start A 1031 Tax Exchange

By: Trisha Coppley

The process of a Section 1031 exchange is one that should be begun with a good deal of planning and foresight; it presents the incautious property investor with ample opportunity for costly errors. Taking this into consideration, you might be hesitant to begin a 1031 exchange without being sure that you will be able to follow it to its end. In all actuality, however, the risks involved in an exchange aren't as intimidating as they might, at first glance, appear.

Starting a 1031 exchange is not in any way a total commitment – as a matter of fact, many of the smartest investors, when selling an investment property will start the process of a 1031 exchange simply to leave the option of exchanging open. This is because, if one begins with the intent of exchanging, there are several opportunities to change one's mind and sell outright, while beginning with the intention of selling outright removes altogether the option of conducting an exchange.

There is actually no reason to worry about the possibility of changing your mind during the course of an exchange. The only thing you actually have to do in order to keep your options open is stay aware of the time frames involved in the exchange process, as they will be the major determining factor of when you will get the opportunity to collect the proceeds that would have been transferred to your 1031 replacement property had you elected to go through with your exchange.

After closing on your relinquished property's sale, the proceeds are transferred directly to your chosen intermediary. Once this has occurred, the earliest point at which you can take back your proceeds from the qualified intermediary is after a period of 45 days, in which time you are supposed to have identified a suitable 1031 replacement property. If 45 days come and go without your having identified a replacement property, the exchange will end and you will be able to collect the money from the initial sale. If you have identified a replacement property prior to deciding that you would like to terminate your exchange, simply revoke that identification before the end of the 45 day period, and the exchange will end.

If you've already completed this stage of the 1031 process, the next opportunity to retrieve your 1031 proceeds will be 180 days from the end of the 45 day period, the deadline assigned for closing on the purchase of your 1031 replacement property. An exception to this rule is that if your federal income tax return occurs prior to this deadline, you can shorten this time frame. As long as you do not ask for an extension on your return, you are able at this point to tell your qualified intermediary the exchange is over and collect your {proceeds.

In the end, it is always best to prepare for any circumstances that might arise; starting the 1031 process when you are unsure what will happen in the future can, in fact, be a good way to keep both options available. As long as you take note of the time frames involved in the process, you can have the freedom to change your mind regarding the exchange in the event that there is a change in your circumstances.

Many Types Of Investment Property Qualify For A 1031 Tax Exchange. Be Sure To Consult With An Expert That Offers 1031 Exchange Services To Maximize Your Tax Savings. More Information Is Available At www.Top1031Exchange.com

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