Q:

Subject: Exchange Question

 

New question from a client, that I have not encountered before. If 3 prospective replacement properties were identified for an exchange within 45 days of the sale of a property and none of the 3 remain available for purchase, can my client substitute a replacement prospect, close on it within the 180 day time frame and still defer the capital gains tax consequence?

A:

Based on the way in which you described your client's situation, the answer is a very big NO. 

The only statutorily eligible reasons for an extension of either the 45 or 180 day deadlines are when the property has been affected by a Presidentially declared disaster or if the taxpayer is on active duty in a combat zone.

If the taxpayer just dawdled and let other people buy up those listed properties, IRS has no sympathy for him. 

This is why we have always advised working diligently on the acquisition phase of the exchange as early in the process as possible; ideally while the disposition phase is still in progress.

Hopefully, this lesson won't be too expensive for your client and he will be more on top of things the next time he attempts an exchange.  If the potential tax bill is substantial, your client may want to make the new owners of the properties substantially increased offers so that he can still acquire them within the 180 day deadline.

Kerry Kerstetter

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- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/08/2007 11:54:00 AM Send this post: