Bowling Alley Misconception in a Section 1031 exchange

One of our exchanger’s is selling (exchanging) a bowling alley for an interest in a shopping center.  The taxpayer (Exchanger) was very upset because he was told by a “professional” that he had to conclude a simultaneous transaction in order to have a valid Section 1031 tax deferred exchange. S

o let me correct one of the many misconceptions about 1031 exchanges. 

A one-for-one simultaneous exchange need not take place.  In 1991, the law was changed in the IRS Regulations, allowing tax deferred Section 1031 exchanges.  So for the past 18+ years, the taxpayer has been permitted to have a forward delayed exchange.  In a standard forward delayed exchange (the most common type of exchange), property is sold (Relinquished Property) and Replacement Property is purchased (Replacement Property) within 180 days following the sale of the Relinquished Property.  In other words, the exchanger can "relinquish" but does NOT have to close on the purchase of the "replacement" property simultaneously;   they can delay the closing on the purchase of the "replacement" property for up to 180 days from the sale of the relinquished property. 

I personally have handled more than 10,000 Section 1031 exchanges as the Qualified Intermediary and am amazed that this question is asked of my staff daily.

Comments

[John Hamrick]

Stephen, we spend the vast majority of our "outside time" dispelling these myths with professionals, it's actually beyond belief. Great blog, thanks for the thoughtful posts.