Failed 1031 Exchange
I solda property in early December 2005 thru a qualified intermediary. I nominated two properties as potential exchanges. The one property has since become unpalatable. The second has become embroiled in litigation and shot of an amicable resolution will not close prior to the 180 period for transfer.
Question. Would taxes be due for 2005 (sale occured in December 2005) or for 2006 (when nominated property failed) . The issue is that I will need to file an amended return if due for 2005, or pay taxes so as not to be encumbered with interest and penalties.
Thanks
Thanks for your replies. The intermediary still has the funds. I will have to see about nominating another property.
P.S
If you file your 2005 tax return before you complete your exchange, you will also have blown your exchange.
P.S
If you file your 2005 tax return before you complete your exchange, you will also have blown your exchange.
This is an old post, but I wanted to clarify one point. The key to using installment sale treatment under Section 453 of the Internal Revenue Code on a failed 1031 exchange revolves around the Tax-Deferred Exchange Agreement that was executed between the taxpayer and the Qualified Intermediary. If the Qualified Intermediary used the correct language (usually copied right from Section 1.1031 of the Treasury Regulations) to prevent the taxpayer from having access to the funds until either after the 45 days or the 180 days then installment sale treatment will work and is a great year-end tax planning strategy. If, on the other hand, the language contained in the Tax-Deferrred Exchange Agreement does not prevent the taxpayer from having access to the funds then legal counsel will need to review the agreement to determine the appropriate course of action (usually taxable in the year in which the sale closed).
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