Tax Guru-Ker$tetter Letter
Saturday, February 11, 2006
Penalties On Failed Exchange
Q:
Subject: Exchange Question
If a Section 1031 exchange is set up, but cancelled when one of the partners cashes out, are there any IRS penalties?
Thanks.
A:
If an exchange falls apart before being finalized, the disposal will be reclassified as a fully taxable sale, which would generally result in high taxes and possible late payment penalties. There is no separate penalty on the failed exchange itself.
Kerry Kerstetter
Labels: 1031