Avoid costly mistakes when reporting your 1031 exchange.
As tax season approaches, one of the most common and costly mistakes 1031 exchangers make is filing their tax return before their exchange is complete. Doing so can result in unintended tax liability and the loss of valuable tax deferral benefits.
Once you file your federal or state tax return, your 1031 exchange period ends immediately. This means:
- Your exchange will be considered incomplete, and you will have to pay capital gains tax on the sale of your relinquished property.
- You CANNOT amend your tax return to retroactively report the exchange.
- Your tax deferral is lost, and the sale must be reported as a taxable event.
What to do if your exchange extends past tax deadlines.
You must file for a tax extension, if your 1031 exchange extends beyond the standard tax filing deadline of April 15, 2025 (for individuals) or March 15, 2025 (for partnerships and corporations).
Filing an IRS extension (Form 4868) allows you to:
- Preserve your full 180-day exchange period.
- Delay your tax return filing until October 15, 2025 (for individuals) or September 15, 2025 (for partnerships and corporations).
- Avoid an early termination of your exchange and an unexpected tax bill.
To ensure accurate reporting and compliance with IRS regulations, it is always advisable to consult your tax advisor before submitting your return. 1031 CORP.’s comprehensive 1031 Exchange Reporting Guide provides step-by-step instructions for completing Form 8824 and understanding key reporting requirements.
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1031 CORP. cannot provide tax or legal advice, but our knowledgeable Exchange Team is here to educate Exchangers and work with their advisors.
