One of the biggest things to remember on a 1031 exchange is the 45-day identification deadline. Usually you have 45 calendar days from the date of the sale of your investment property to identify the property or properties you intend to purchase as your replacement. Maybe you have plenty of time, but those days can go fast, particularly if you are still negotiating, looking at properties or working on your financing.
If you don’t properly identify a replacement property within those 45 days, your exchange can be in serious trouble. In most cases, missing the deadline means the exchange will not qualify for tax deferral, and the gain from your sale may become taxable. Unfortunately, finding a property after the deadline usually doesn’t solve the problem.
That’s why it’s smart to start looking for potential replacement properties as early as possible. You don’t have to wait until your current property sells to begin researching your options. Having a few properties in mind before the clock starts can make the identification process much easier.
It’s also important to remember that the 45-day period is strict. Weekends and holidays generally count, so there’s no extra time just because the deadline falls on a weekend or holiday. When you stay in close contact with your qualified intermediary and other professionals involved in the transaction, they can help you keep track of the dates and avoid a costly mistake.