When selling a property in Alabama, taxes are levied on capital gains. However, for those who want to defer the capital gains taxes they face and roll their gains into the purchase of another property shortly after the sale, the 1031 Exchange is a very convenient option. However, like many real estate legal processes, the 1031 Exchange process can get complicated and confusing. So, to simplify it a bit, let’s outline some of the key deadlines in the 1031 Exchange process that you can’t miss in Alabama.
Day 0: The Date of Sale of Your Property
The day that begins the entire 1031 Exchange process is day 0. This is the day that your initial property is sold, yielding you capital gains on the property. These capital gains are the result of making a sale at a higher price point than the one by which you acquired the property. When looking to defer the taxes owed on these capital gains through a 1031 Exchange, this is the day the process begins.
Once your property has been sold, the countdown to days 45 and 180 begin, which are equally as important dates in your 1031 Exchange journey.
Day 45: Finding Your Next Property
Following the sale of your property, you have 45 days to find your next property which you will roll capital gains from the initial sale into the purchase of. This means identifying at least one potential property for purchase, and having this property or properties listed in writing and delivered to your qualified intermediary. You are allowed to identify up to 3 potential properties for purchase in this process.
There are several rules regarding how these properties can be chosen and what requirements they must meet, including property value and other aspects. If you do not properly identify these potential properties you are considering purchasing and rolling your capital gains into, your 1031 Exchange will be terminated.
Day 180: The Date of Closing on Your Next Property
The final key deadline you can’t miss in the 1031 Exchange process is day 180. Day 180 is the last day to close on your new property, which you would be rolling your capital gains from the initial property sale into in order to purchase. There are other regulations and tax procedures that can potentially shorten this 180 day window as well, so be sure to contact trusted corporate law professionals to ensure you have the proper timeline.
Like with deadlines, if you fail to close on your new acquisition property by 180 calendar days after the sale of your initial property, your 1031 Exchange will be terminated. In these cases, you will be due the capital gains tax related to your sold property.
1031 Exchanges and Real Estate Law Assistance with Muncie, Mattson, & Gunter, Attorneys at Law
If you are planning to embark on the 1031 Exchange process in Alabama, the real estate law experts at Muncie, Mattson, & Gunter are prepared and willing to assist you. The process can be complicated and time consuming, so seeking a professional opinion on your situation could be of great help. MM&G has a great wealth of experience serving Alabama residents in their residential & commercial real estate law needs, including 1031 Exchanges.
If you are interested in contacting MM&G regarding our real estate law services, you can visit our contact page for more information, or click here to give us a call.