A common misconception surrounding the 1031 exchange is that the 180-day closing deadline is the only deadline to account for when closing on the replacement property. Many are unaware that the deadline to close on the replacement property is EITHER 180 days from the sale of the relinquished property OR the due date of the exchanger’s tax returns, WHICHEVER OCCURS FIRST.

If the due date for your tax return is before you close on the replacement property you will no longer be able to defer capital gains taxes through a 1031, and you will have to pay capital gains taxes on the gain from the sale of the relinquished property.

Because of this, anyone in middle of an exchange and the due date for their tax return is coming up (March, for partnerships and S corporations & April 15, for individuals and C corporations) must complete their exchange before then OR file for a tax return extension, which will extend the tax return deadline for another 6 months. However, keep in mind that you must still close before the 180-day deadline from the time of sale of the relinquished property.