Anyone familiar with the ins and outs of 1031 exchanges is aware of the 45 day and 180 day time limits. You have 45 days after the day of closing to identify in writing, clearly and unambiguously, the replacement property or properties you want to receive. Then, you must receive your replacement properties within 180 days after closing in order to complete the 1030 exchange. Sounds fairly simple, but what happens if the building in which you are to close is destroyed, or the closing is otherwise delayed due to a natural catastrophe or a presidentially declared disaster? Events like this may seem rare, but it does happen. Plan in advance in order to deal with the unexpected surprises that may jeopardize your 1031 exchange.
Do not expect a lot of flexibility from the IRS surrounding the 45 and180 day limits. The time limits are strictly enforced, however, there is a rare exception where the IRS may grant you an extension. If you are directly or adversely affected by a natural catastrophe or a presidentially declared disaster, the IRS may grant you a special dispensation in order to complete your 1031 exchange. This extension is the result of legislation passed by Congress in the wake of the September 11th terrorist attacks. But, do not bank on this special IRS extension. The IRS must determine that the devastation is sufficient before it will grant this special 1031 extension.
Your best bet is to plan ahead in order to deal with other unexpected hindrances to a successful 1031 exchange. Knowing what to do in these instances will save you a lot of stress and worry, and allow you to complete your exchange. In one case, a taxpayer purchaser was set to close and complete his1031 exchange, when the seller unexpectedly died. An emergency probate decree was required in order to transfer the replacement property from the deceased seller’s estate to the purchaser. In another instance, the 1031 buyer discovered that the seller’s misrepresentations made the replacement property a less than ideal purchase. Unfortunately, this occurred at the last minute and left the purchaser scrambling to close on replacement property that was initially a back-up purchase.
Remember that the 45 day and 180 day rules must be strictly adhered to, unless there is a presidentially declared disaster and the IRS issues a special dispensation. However, do not count on the IRS to bail you out. The best idea is to play it safe. Expect the unexpected and close early, which will give you a time cushion in the event the unexpected does happen. Have back-up properties in mind in case the closing is affected by something beyond your control.