Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
Hopefully someone has insight on 1031 exchanges.

A little bit.

I sold a property in Dec 2006 and have until tomorrow to name the exchange properties.

OK. You can name up to three possible replacement properties. (More if certain conditions are followed.) Make sure to do it in writing and deliver it to your exchange accomodator.

If I don't name them then the 1031 doesn't go through and have to pay the gain in the tax year 2006.

Correct.

If I name the properties and cancel say in june or July, do I have to amend my 2006 or can I put it on the 2007 return.

The sale OR the exchange will be reported on your 2006 tax return. But there's no amending problem. Why? Because you have to complete the exchange by the earliest of 180 days after the sale OR the due date of your tax return, including extensions.

In short, you can't file your 2006 return until you get the exchange settled. If you haven't finished the exchange by April 17, you'll need to file an extension for your 2006 return to give you time to complete the exchange. And because you're on extension, you won't need to amend.

If you have already filed your 2006 return, you've got some problems. And I'm not sure how deep those problems run. So let's hope that's not an issue.

Now if you need to go on extension to finish the exchange, you'll also have some question with estimating your tax liability. Do you estimate your tax liability with the exchange - a lower number? Or do you estimated it as if the exchange fails and the sale is taxable - a higher number?

The obsessively conservative would take the latter approach. If the exchange fails, you will need at least 90% of your taxes paid in by the extension date to have a valid extension. And that would be the higher number. Then, if the worst case does NOT happen, you have an overpayment and will get it refunded when you complete the exchange and file your return.

If you feel like taking a risk, estimate your tax liability with the exchange (the lower number). If the exchange goes through, you're fine. But if it fails, you'll have additional tax, plus penalties and interest for late payment. You might be able to avoid the late filing penalty - after all you did file an extension. But without enough paid in, the IRS might invalidate your extension and assert a late filing penalty as well.

--Peter
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.