Beginning The 1031 Process Can Help Real Estate Investors Keep Their Options Open When Selling

By Author: Trisha Coppley
Total Articles: 46
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The process of a Section 1031 exchange is one that is best ventured into with a certain amount of foresight and planning; it contains ample opportunity for the unwary real estate investor for costly errors. Taking this into consideration, you may be skittish regarding beginning a 1031 exchange without being sure that you'll be able to follow it to completion. In reality, though, the risks involved in an exchange don't have to be as unmanageable as they may, at first, appear.

Beginning the 1031 process isn't by any means a total commitment - as a matter of fact, many smart investors who are selling an investment property will begin the process of a 1031 exchange just for the purpose of keeping their options open. This is because, if one begins with the intent of exchanging, there exist several chances to change one's mind and sell the property outright, while beginning with the intention of selling outright removes altogether the option of conducting an exchange.

There is no real reason to be afraid of the possibility of having a change of heart in the course of an exchange. All you actually have to do in ...
... order to keep your options open is stay aware of the deadlines involved in the exchange process, as they will be the major determining factor of when you'll have the opportunity to collect the money that would've been transferred to your replacement property had you chosen to go through with the exchange.

After you close the sale of your relinquished property, the proceeds of the sale are transferred directly to your intermediary. Once this has occurred, the first point at which you can retrieve your money from your qualified intermediary is at the end of the ensuing forty-five days, in which time you are supposed to have identified a suitable replacement property. If this deadline arrives without your having made an identification, the exchange process will automatically be terminated and you'll be able to collect the proceeds of the initial sale. If you've made an identification before deciding that you do not want to go through with the exchange, you can just revoke the identification before the forty-five days have passed, and the exchange will end.

If you are past this step in the process, the next opportunity you will have to collect your proceeds will be one-hundred-eighty days from the end of the forty-five day period, which is the deadline assigned for closing on the purchase of a replacement property. However, if your federal income tax return occurs before this deadline, you can shorten this waiting period. Provided that you don't ask for an extension on your return, you are able at this point to tell your qualified intermediary that the exchange has been terminated and collect your {money.

At the end of the day, it's always best to prepare for any circumstances that may arise; starting a 1031 exchange when you are not certain what the future may hold can, in fact, be a good way to keep both options open. As long as you take note of the deadlines involved in the process, you can have the freedom to change your mind regarding your exchange if there is a change in your circumstances.