To make it over the finish line before the clock runs out on a 1031 exchange, a Broker needs a good game plan. Bob Nelson, Eugene real estate investment broker with Pacwest Real Estate Investments, in parts 4, 5 and 6 of his 1031 exchange series shares his 45-day to close game plan. In part 4, he outlines the misunderstanding that leads to disaster and other concerns a Broker should be aware of in the 45-day identification period of a 1031 exchange.
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Beware: Major red flags
Your client isn’t responding to the urgency of the transaction timeline. An exchange is a huge timed event. Lack of time will even kill a good game plan.
Your client doesn’t understand their tax consequence and or they lack the understanding of how to complete the transaction. These problems can be solved through early stage client counseling.
The Misunderstanding That Leads to Disaster
The client thinks all they are required do is identify properties and file the paperwork.
The time restrictions of the time deferred exchange as contained in Internal Revenue Code Section 1031, simply says to identify a restricted number of properties in the initial 45-day period following the sale of the relinquished or down-leg property.
What’s going to happen if your client doesn’t do anything but what is required by code:
Your client has identified 3 properties during the 45-day period. The paperwork has been submitted to the exchange facilitator that will be acting as a facilitator of their exchange. All should be well as everything has been done as is required by the code. And then the following happens:
One of the properties burns down. It’s no longer available.
The seller of property two sells it to another person. Since you didn’t put property two under contract it’s no longer available.
The owner of property three announces “oh gosh I’ve got a problem. I’m going to have a divorce. It’s going to be a nasty thing and I’m not going to be able to probably sell this property for about a year.
One is gone, two is gone, three is gone and the client’s only opportunity now is to PAY THE TAX. Your client did everything the tax code required, and they are still paying the tax.
Bob Nelson, Eugene Commercial Real Estate Investment Broker:
You did everything the tax code required and you’re still paying the tax. What happen? Lack of a good game plan for the 45 day identification period and lack of time killed the deal.
Increase your probability of success by following the 45-day to close game plan that I have developed over my 45+ years of doing tax deferred exchanges that I will be sharing in the next installment.