TCP · Property Transactions (disposition of assets) · 6 practice questions
1031 deferred exchange: 45 day ID, 180 day receipt, no cash
In a deferred 1031, identify within 45 days after transfer and receive the replacement by the earlier of 180 days after transfer or the return due date; do not have actual or constructive receipt of proceeds. Below is a timeline of the deadlines and cash-control rules, plus 11 free practice questions.
Try one first
Hint
Identify which deadline is earlier: 180 days after transfer or the taxpayer's return due date for the year of transfer, and check whether an extension was obtained.
Answer D. Under a deferred Sec. 1031 exchange, replacement property must be received by the earlier of (1) 180 days after the transfer of the relinquished property or (2) the due date of the taxpayer's return for the year of transfer, determined without regard to extensions unless an extension is actually obtained. Lopez transferred the relinquished property on December 20, Year 1; his unextended Year 1 return due date (mid‑April of Year 2) occurred before the 180th day. Because Lopez did not obtain an extension and he received replacement property on May 20, Year 2, after the unextended due date, the exchange fails to qualify for nonrecognition.
Why not A: Tempting because the 45-day identification and 180-day receipt rules are commonly memorized. However, those deadlines are subject to the earlier-of limit tied to the taxpayer's return due date; because Lopez did not obtain an extension and the unextended due date fell before the 180th day, the May 20 acquisition was untimely.
Why not B: A qualified intermediary does prevent constructive receipt, which is why QIs are commonly used, but it does not change the statutory timing rule. The earlier‑of 180 days or the taxpayer's unextended return due date still controls unless the taxpayer properly obtains an extension.
Why not C: This is a plausible misapplication of timing. In reality the 180-day receipt period runs from the transfer of the relinquished property, not from the identification date, so measuring from identification understates how soon the replacement must be received.
The timeline
- Before transferContract signed
The contract date does not start the 45-day or 180-day periods. Timing is triggered by the date you transfer the relinquished property.
- Day 0Transfer of relinquished property; exchange begins
Both deadlines start now. Set up the qualified intermediary and assignment at or before closing, and the taxpayer must not have actual or constructive receipt or control of proceeds.
- 45 daysIdentification deadline
Only timely identifications count. Identification must be in writing unless you actually receive the replacement property within the 45-day period, in which case that property is treated as identified. Use the 3-property rule or, if identifying more than three, keep aggregate FMV within 200% of the relinquished FMV; otherwise you must acquire at least 95% of the aggregate identified value.
- Unextended return due date for the year of transferEarlier-of cutoff can apply
The receipt deadline is shortened to this date unless you obtain a filing extension. Filing an extension preserves the full 180 days; filing early does not change the statutory cutoff.
- 180 days after transferFinal receipt deadline
You must receive qualifying replacement property by the earlier of this date or the return due date for the year of transfer, including extensions. Missing this deadline defeats nonrecognition.
- At closingNo actual or constructive receipt of proceeds
Proceeds wired to the taxpayer or to an escrow the taxpayer controls kill the exchange. Moving cash to a qualified intermediary after closing does not cure prior receipt.
- Within 2 years after a related-party exchangeRelated-party disposition rule
If a related party disposes of property received in the exchange within two years, the original transferor must recognize the previously deferred gain in the year of that disposition.
Key points
- Both the 45-day identification clock and the 180-day receipt clock start on the date the relinquished property is transferred, not on the contract date and not on the date a qualified intermediary receives funds.
- The receipt deadline is the earlier of 180 days after transfer or the return due date for the year of transfer, including extensions. Filing an extension preserves the full 180 days; filing the return early does not shorten the period.
- Use a qualified intermediary and prevent the taxpayer from receiving or controlling the proceeds at or before closing. Routing funds to the taxpayer or an escrow the taxpayer controls defeats nonrecognition.
- Identification limits: identify up to three properties regardless of value, or identify more than three only if aggregate FMV does not exceed 200% of the relinquished FMV; otherwise, the 95% acquisition exception must be met.
- Only properties timely identified within 45 days (or actually received within the 45-day identification period) are valid; acquiring a property that was not timely identified defeats nonrecognition.
- Related-party exchanges can be disqualified if a related party disposes of the property within two years, which triggers recognition of previously deferred gain to the original transferor.
How the exam traps you
- Starting the 45-day and 180-day clocks on the contract date or the date the QI receives proceeds. Start both periods on the date you transfer the relinquished property.
- Ignoring the earlier-of rule and assuming you always have 180 days. You must receive replacement property by the earlier of 180 days after transfer or the return due date for the year of transfer. File an extension to preserve the full 180 days.
- Exceeding the identification limits by listing more than three properties with aggregate value over 200% and acquiring less than 95% of that value. Use the 3-property rule or keep aggregate identified FMV within 200% of the relinquished FMV, or acquire at least 95% of aggregate identified value.
- Letting sale proceeds hit the taxpayer’s account or be subject to the taxpayer’s control at closing. Have assignment and exchange documents in place at or before closing and route proceeds to a qualified intermediary under restrictions that prevent taxpayer control.
Question 2
Hint
Focus on two things: what kind of property still qualifies under current Sec. 1031, and whether the taxpayer ever receives the sale proceeds.
Answer D. Under current Sec. 1031, like-kind exchange nonrecognition applies only to real property held for productive use in a trade or business or for investment. Using a qualified intermediary to effect an exchange of the warehouse for another business-use real property and receiving no cash avoids constructive receipt and, given equal values and no assumed liabilities, can fully defer the realized gain.
Why not A: This is tempting because replacement property is acquired soon after disposition, but a sale followed by a later purchase is a taxable sale unless structured as a like-kind exchange. Receipt of the cash destroys nonrecognition treatment.
Why not B: Segregating proceeds in the taxpayer's own account does not prevent constructive receipt. A taxable sale followed by a later purchase remains taxable; segregation alone does not convert the sale into a qualifying exchange.
Why not C: This distractor traps recall of older, broader like-kind rules for personal property. After the 2017-2018 tax changes, Sec. 1031 is limited to real property exchanges; personal property (trucks) is ineligible even if a qualified intermediary is used.
Question 3
Hint
Compare each choice to the Section 1031 delayed-exchange requirements: the 45‑/180‑day timing rules and whether any cash or non-like-kind property would be received.
Answer D. Section 1031 permits nonrecognition for exchanges of like-kind real property held for investment. A properly structured delayed exchange (using a qualified intermediary) that meets the 45‑day identification and 180‑day acquisition deadlines and avoids receipt of cash or other boot will allow Dara to defer the built-in gain because only like-kind property is received.
Why not A: This choice tempts because the taxpayer acquires replacement property soon after disposition, but Sec. 1031 does not apply once the taxpayer receives and controls cash proceeds, the transaction is a taxable sale, not a qualifying exchange.
Why not B: This appears to be an exchange, but the $50,000 cash is boot; boot generally causes current gain recognition up to the amount of cash or non-like-kind property received, so Dara would not fully defer the built-in gain.
Why not C: This is tempting because both items relate to real estate, but partnership interests are not like-kind to direct real property; receiving a partnership interest is treated as non-like-kind consideration (effectively boot) and triggers recognition to the extent of its value.
Question 4
Hint
After confirming the 45-day and 180-day timing rules, focus on who had actual or constructive receipt of the sale proceeds at closing and whether any exchange arrangement, escrow instruction, or assignment existed at or before closing.
Answer C. A delayed Section 1031 exchange requires that the taxpayer not have actual or constructive receipt of the sale proceeds at closing unless proceeds are directed at that time to an accommodator/QI or held under instructions that prevent the taxpayer's control. Here, J received the proceeds into J's personal account and had access to them before any exchange arrangement existed; that prior actual receipt prevents treating the transaction as a qualifying delayed exchange, even though the 45/180 identification and acquisition deadlines were later satisfied.
Why not A: Tempting because the 45/180 rules are necessary for a delayed exchange, but they do not retroactively cure prior actual receipt of proceeds at closing. The dispositive issue is who had control of the funds at the time of disposition.
Why not B: Tempting because candidates may think a quick transfer to a QI cures the defect. However, a post-closing transfer to a QI does not undo the taxpayer's prior actual receipt and control of the proceeds at closing.
Why not D: Tempting because it focuses on sequencing, but it's incorrect: the delayed-exchange rules permit identification within 45 days after disposition. The problem here is the taxpayer's receipt of proceeds at closing, not the timing of identification.
Question 5
Hint
Focus on the current scope of Section 1031 and ask whether the taxpayer ever receives cash or other non-like-kind property.
Answer A. A properly structured delayed Section 1031 exchange allows Nell to defer recognition of the entire gain on investment real property when she receives only like-kind replacement real property and satisfies the identification and exchange-period rules. Identifying replacement property within 45 days and acquiring it by the 180th day (and using a qualified intermediary to avoid constructive receipt of the sale proceeds) are the standard requirements for a delayed exchange. Because the replacement property will be held for investment and no boot is received, Nell can defer all current gain.
Why not B: Although this is an exchange of investment real property, the $25,000 cash is boot. Boot generally causes current gain recognition to the extent of the lesser of realized gain or the boot received, so Nell would not defer the maximum possible gain.
Why not C: This is tempting because it looks like reinvesting proceeds, but a cash sale followed by a later purchase is a taxable sale: once Nell receives cash proceeds she is treated as having realized and recognized gain unless another specific nonrecognition provision applies.
Why not D: This reflects an outdated broader view of like-kind rules. Under current Section 1031 rules, like-kind nonrecognition applies to exchanges of real property for real property; machinery is personal property and would not qualify to defer gain on land.
Question 6
Hint
First apply the 45‑day identification tests: count the identified properties and compare their aggregate FMV to 200% of the relinquished FMV; consider the 95% acquisition exception only after that comparison.
Answer A. The Section 1031 identification rules allow up to three properties regardless of value, or more than three only if the aggregate FMV of identified properties does not exceed 200% of the relinquished FMV (or if the taxpayer actually acquires at least 95% of the aggregate identified value). Hart identified four properties totaling $2,110,000, which is just above the 200% limit ($2,100,000), and he acquired only $1,060,000 of the identified property, far less than 95% of $2,110,000. Because neither the 200% test nor the 95% exception is met, the 45‑day identification is not valid and Hart does not satisfy the Section 1031 identification requirement necessary for nonrecognition.
Why not B: Tempting because it sounds like a partial deferral, but failure to satisfy the 45‑day identification requirement prevents the exchange from qualifying for Section 1031 nonrecognition; the identification rules do not operate as a simple pro‑rata deferral to the FMV of the acquired replacement property.
Why not C: Tempting because use of a qualified intermediary and completing acquisition within 180 days are required for a deferred exchange, but those facts do not substitute for complying with the separate 45‑day identification rules; a defective identification is not cured by having a QI or by timely purchases.
Why not D: Tempting because the purchased property was qualifying real estate and the acquisition was timely, but validity turns on what was identified within the 45‑day window. Identifying more than three properties triggers the aggregate‑value limitation regardless of what is later acquired unless the 95% exception applies.
Common questions
When do the 45-day and 180-day periods start for a deferred 1031 exchange?
Both periods begin on the date you transfer the relinquished property. The contract date or the date the qualified intermediary receives funds does not start the clocks.
Does filing a tax return extension give more time than 180 days?
The receipt deadline is the earlier of 180 days after transfer or the return due date for the year of transfer, including extensions. Filing a valid extension preserves the full 180 days; filing early does not shorten the period.
Is written identification always required within 45 days?
Identification must be in writing unless you actually receive the replacement property within the 45-day identification period. Actual receipt within 45 days is treated as identification.
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