Is Time On Your Side? Important Calendar Dates To Watch For In A 1031 Exchange

Federal law gives a commercial real estate investor up to 180 days to complete a 1031 exchange: 45 days to identify a new property and another 135 days to complete the purchase.

This is usually an adequate window for an investor to complete a 1031 exchange, which allows the investor to defer paying taxes on a gain realized in a sale by reinvesting in a like-kind property. 

However, investors could be limiting themselves if they don’t pay attention to certain nuances involved in the statute of Section 1031. That is because, in a couple of common scenarios, 45 plus 135 might not automatically equal 180 days.

“For people who are doing 1031 exchanges, the bane of their existence is these critical dates, the 45 days to identify and the 180 days to purchase,” said Chris Newton, executive vice president at Chicago Deferred Exchange Co., a qualified intermediary and exchange accommodation titleholder.

Newton said ignoring how the deadlines work in practice can cause a “stub-your-toe moment” where the investor accidentally limits the time allowed to complete the exchange.

For example, an investor who takes the full 45 days to identify a like-kind property might find they have fewer than 180 days to complete the purchase. That is because a 1031 exchange timeline is impacted by the investor’s tax filing date with the IRS.

“Let’s say you completed your property sale in early November, and 180 days from that is early May of the following year,” Newton said. “But if your tax filing deadline is April 15, you don't have until May. You have until April 15, unless you extend your filing deadline.”

In this somewhat common scenario, the taxpayer must request a filing extension for their 2025 return to take advantage of the full 180 days allowed to purchase the new property, Newton said. If they don’t, then the exchange period ends on the due date of their tax return, and the investor loses precious days or even weeks to seal the deal, putting the exchange at risk. 

“You don't want to accidentally shorten the period by not paying attention to the rules,” Newton said. “But don't panic if your deal isn't coming together as fast as you thought it would. If you need more time, an extension is available if you request it.”

Another possible opportunity exists when an exchange straddles two calendar years. 

Newton described a situation in which an investor sells a residential rental property for $2M in December 2025 and enters into a 1031 exchange with the $2M deposited into a qualified trust account. The investor then makes an offer of $2.5M on a multifamily property that is listed at $3.1M. 

If the offer is rejected and the investor can’t formally identify a potential replacement property, all isn’t necessarily lost, however. 

Applying for a short-term deferral will allow the cash from the sale of the relinquished property to be paid to the investor from the qualified trust in January — on the 46th day. Under Treasury Department regulations concerning failed or partially completed exchanges that straddle the tax year, the investor can treat the sale as an installment sale and recognize the gain on their 2026 tax return, to be filed in 2027.

“There are people who, if they sell their property after mid-October, will almost always engage a qualified intermediary like CDEC and get their 1031 docs in place, even if they haven’t yet identified an exchange property,” Newton said. “Provided the investor has a bona fide intent to enter into the exchange, even if the transaction is not completed, they will still get a short-term deferral and must report the sale and pay the requisite taxes in the following tax year.”

To take advantage of these strategies, the investor must demonstrate a bona fide intent to complete the exchange. This means that it is reasonable to believe, based on all of the facts and circumstances known at the beginning of the exchange period, that like-kind property will be acquired before the end of the exchange period. 

At a minimum, the taxpayer must engage the services of a qualified intermediary, and the proceeds of the sale must be held in the qualified trust or escrow account for the full 45-day identification period before an exchange can be treated as failed, Newton said.

Another nuance to be aware of: Interest may be required to be paid on a deferred tax liability in excess of $5M. If the potential interest liability is significant, pushing the gain into the next taxable year may not be ideal for all taxpayers. The potential interest liability might be significant, or losses might offset the gain. 

In any case, seeking the help of a QI like CDEC can help identify and limit risks.

“Delaying the tax bill until the next tax year or requesting an extension can be powerful planning tools when the numbers make sense,” Newton said. “But it is always wise to examine the economics of the transaction before committing. We at CDEC love an educated client, and we’re always here to help get them up the learning curve.” 

This article was produced in collaboration between Chicago Deferred Exchange Co. and Studio B. Bisnow news staff was not involved in the production of this content.

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