Pursuant to section 1031 of the Internal Revenue Code, taxpayers are able to defer the gain from the sale of investment property (“relinquished property”) by identifying (within 45 days after the date of the sale of the relinquished property) and purchasing a replacement investment property. Taxpayers must complete their 1031 exchange through a qualified intermediary by the earlier of:
180 days from the sale of the relinquished property or
the filing date of their tax return for the year in which the relinquished property was sold, whichever comes first.
Taxpayers must remember to complete the exchange for the sale of their relinquished properties and the acquisition of their replacement properties between October 18 and December 31st, prior to the filing of their 2009 tax returns, filing an extension if necessary to allow for the full 180 days.
If the taxpayer fails to file an extension, the exchange period will end on the date of tax filing.
The taxpayer should also consult with their accountant or tax advisor to assess the year of gain recognition for any partial or failed exchanges straddling the 2009/10 tax years.
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