| Sales & Exchanges / Deferred like-kind exchanges |  |
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A deferred exchange may be necessary
when you find a 'customer' who wants your property but who has not yet
acquired property to turn over to you in exchange or when you find a
property that you want, but have not yet found property the other person
will be willing to accept in exchange. Or perhaps you have not yet
determined your needs for replacement property and seek a delay in
determining what property to accept in exchange. Under the like-kind exchange rules,
you can structure a deferred (nonsimultaneous) exchange. You transfer
your property to the other party but defer your receipt of replacement
property. To qualify, the following time limits must be met: (1) The property you are to receive
must be 'identified' no later than the day that is 45 days after your
property is transferred. Identification must be made in writing and
clearly describe in appropriate detail the property to be transferred. (2) The actual transfer must occur
no later than the earlier of: (a) the day 180 days after your
property is transferred, or (b) the due date (including
extensions) of your tax return for the year in which you gave up your
property in the exchange. It pays to be particularly careful
with this second requirement. If you transfer your property in the
exchange late in the year, you should not automatically assume that you
have 180 days to receive the replacement property. Say you transfer your
property on December 10th. If you don't get an extension for filing your
tax return, you will have to receive the replacement property in
exchange by April 15th, which is earlier than the day which is 180 days
after December 10th. Of course, in this case, a filing extension will
give you additional time. Note, however, that no extensions can be
obtained on the 45- or 180-day periods themselves. Alternative arrangements.
If the time limits outlined above are too restrictive in your case, we
may be able to work out alternative arrangements which effectively give
the exchanging party more time to come up with the replacement property. These arrangements can involve: (a) leasing your property to the
other party for a period of time, rather than transferring it outright, (b) granting an option to buy your
property to the other party which could be exercised when the
replacement property becomes available, or (c) transferring your property to an
independent trust or escrow arrangement to be held until the exchange
can be made. A final possibility, which I mentioned earlier when I referred to a reverse exchange, is a special transaction that IRS recognizes, called a qualified exchange accommodation arrangement. If you follow to the letter the rules IRS has set out, you can arrange to have the property you want to acquire transferred to an accommodation party until the property you will relinquish has been identified. The transaction turns the timing rule I mentioned above on its head by requiring you to identify the property you intend to exchange, rather than the property you plan to receive in the exchange, within 45 days of the date that the replacement property is transferred to the accommodation party. As I noted, this special transaction must be accomplished exactly in the way IRS requires in order for you to qualify for the favorable tax treatment. |
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