Key Takeaways
- Missed 45-day identification deadline is the most common cause of 1031 exchange failure.
- A failed exchange makes the entire deferred gain immediately taxable—often $15,000-$50,000+ in unexpected tax liability.
- Maintain a tax reserve and identify a DST as a backup to prevent failed exchange catastrophe.
- Reverse exchanges and installment sale elections provide additional contingency options for critical timing situations.
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Test Your Knowledge
1.What is the most common cause of 1031 exchange failure?
2.What is the recommended tax reserve for a 1031 exchange contingency plan?
3.What happens to all deferred gains in a 1031 exchange chain when the final property is sold in a taxable sale?