When It Is Possible To Back Out Of An Exchange Under Section 1031
By Trisha Coppley
The Section 1031 exchange process is one that is best begun with a certain amount of pre-planning and foresight; it contains ample opportunity for the incautious real estate investor to make a misstep. Taking this into consideration, you might be skittish regarding beginning the 1031 exchange process without being certain that you'll be able to follow it to completion. In reality, however, the risks involved in an exchange aren't as intimidating as they might, at first glance, appear.
Starting a 1031 exchange isn't in any way a total commitment – as a matter of fact, many of the smartest property investors who are selling a piece of property will begin the process of a 1031 exchange simply for the purpose of keeping their options open. This is because, if an investor starts out with the intent of exchanging, there exist several chances to change one's mind and simply sell the property, while starting out along the path of selling outright completely surrendering the option of a 1031 tax exchange.
There is actually no reason to worry about the possibility of having a change of heart during the course of an exchange. All you really have to do in order to keep your options open is to be attentive to the deadlines involved in the exchange process, as they will be the major determining factor of when you'll get the opportunity to receive the money that would have been put towards your replacement property had you chosen to go through with the 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 intermediary is after a period of 45 days, which is the deadline for having identified a replacement property. If 45 days have come and gone without your having identified a replacement property, the exchange process will automatically end and you'll be able to receive your proceeds. If you've identified a replacement property before deciding that you don't want to go through with the exchange, you can simply revoke that identification before the end of the 45 day period, and the result will be the same.
If you are past this stage of the process, the next chance you will get to collect your proceeds will be 180 days from the end of the 45 day period, the deadline assigned for closing on your replacement property. However, if your federal income tax return occurs during the 180 days, you can shorten this waiting period. As long as you don't ask for an extension on your return, you are able at this point to tell your intermediary that the exchange has been terminated and receive your {proceeds.
In the end, it is always best to be prepared for any circumstances that might arise; beginning the 1031 process when you're not sure 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 deadlines involved in the process, you are at liberty to back out of the exchange if your situation changes.
About the author
Professional 1031 Exchange Experts Are Available To Help Investors Maximize Tax Savings By Using A 1031 Starker Exchange. Learn More At http://www.Top1031Exchange.com from http://www.FreeArticlesAndContent.com
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