Q. Is it possible to open up a sale of a commercial property and engage in a tax-free exchange two years after the sale closed?
A. It sounds like you’re asking about the tax-free exchange of property known as a Section 1031 Exchange, named for the IRS code that governs the rules.
You have two important time limits.
“Within 45 days of the sale of the property, you need to properly identify the property that you will purchase as a replacement,” said David Ritter, chair of the tax practice at Brach Eichler in Roseland.
Additionally, Ritter said, you must receive the replacement property within the earlier of 180 days after the date of the sale or the due date of your income tax return for the taxable year in which the sale closed.
“If you sell a property and receive the money or other not like-kind property, then the transaction is a sale and does not qualify as a 1031 Exchange,” he said. “Since it seems the property sale was two years ago and you received the proceeds you cannot do a 1031 Exchange.”
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