Exchanging for a Desirable But Unavailable Property

We understand that a deferred exchange means nothing more then disposing of a relinquished property and using the pro­ceeds to acquire the replacement property through the use of a professional Qualified Intermediary.

Now let’s talk about the biggest problem most people have contemplating structuring a deferred exchange. The problem being, what to go back into in the way of a replacement property. Most owners, who have reached a diminishing rate of return and realize that they need to dispose of their investment-held property and reinvest to maximize their rate of return, will agree that the right thing to do when reviewing their transaction alternatives is to treat their disposition as an exchange rather than a sale or installment sale.

A deferred exchange will allow the seller (taxpayer) an opportunity to reinvest a 100 percent of their equity without paying state or federal income tax associated with their gain today. This tax-deferment is indefinite.

Most people will agree that they would choose exchanging over any other method of disposition if they knew what they were going to go back into in the way of like-kind property. That problem was addressed in 1984when our tax code was amended to allow sellers (taxpayers) to perform what was called a delayed exchange. This means that as long as your transaction is set up as an exchange prior to closing on the relinquished property through a professional qualified intermediary, the taxpayer has forty-five days to identify (known as the Identifica­tion Period) the replacement property and one hundred and eighty days (known as the Exchange Period) to take legal title. The forty-five days is part of the one hundred and eighty day period.

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