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Section 1031 allows you to roll the gain from the sale of your Old Property to the purchase of your New Property. To do this, you have to jump through certain hoops: we've written previously about how your property has to be held for investment and that it can not be held for resale. We've talked about the requirement to identify potential replacement properties for your exchange and how you have to complete a list of these potential properties within 45 days with the stipulation that what ever you purchase must be on your 45 Day List. We also talked about how your money must be held by an independent third party called a qualified intermediary and how you must make sure that the intermediary holds your money in an account separate from their other exchanges. And last month we talked about the requirement that you need to take title to the new property in the same name or entity that held title to your Old Property.

Section 1031 allows you to roll the gain from the sale of your Old Property to the purchase of your New Property. To do this, you have to jump through certain hoops. We've talked in previous articles about how your property has to be held for investment and that it can not be held for resale.

We've also talked about the requirement to identify potential replacement properties for your exchange and how you have to complete a list of these potential properties within 45 days. We talked about the requirement that whatever you purchase must be on your 45 day list. And then last month we talked about how your money must be held by an independent third party called a Qualified Intermediary (QI) and how you must make sure that the intermediary holds your money in an account separate from other exchanges.

In a market this hot, if you want to do a 1031 exchange you have quite a dilemma. You would like to exchange your highly appreciated Old Property, but finding replacement property in time is difficult. In a straight 1031 exchange, you have 45 days from the date of sale to identify potential replacement property and 180 days to close the purchase. There are no extensions to these time frames! Property not identified or purchased in time will toast your exchange, and you'll pay tax on the sale of your Old Property.

We're currently in a market where inventory is in short supply, and if you don't act fast, properties are gone. If you're hesitant to sell your Old Property first for fear of not being able to find the perfect New Property in time, consider doing a "Reverse Exchange."

The Internal Revenue Service recently announced that Texas taxpayers—including 1031 exchangers—can have up to June 15, 2021 to file returns, identify replacement property, purchase replacement property, or make other payments due to the chaos caused by February’s winter storms. 

For affected Texans, FEMA has issued a disaster declaration for the entire state. Other tax-related accommodations can be made for taxpayers in other states impacted by these winter storms. A list of eligible localities can be found at irs.gov on their disaster relief page.