1031 exchange question

[kolee]

Hi all,

my client is going through 1031 exchange and the seller has filed bankruptcy 3 days before 180 day rule and now it went past 180 days since he sold his property. Is there any IRS ruling on 1031 exchange exception on the seller bankruptcy case so that my client can defer his capital gain?

Thanks in advance!

[Roland Slugg]

There is no good faith exception to the 180-day (or the 45-day) deadlines.

[Burke]

Roland is correct. Your terminology is a little confusing. So I am assuming your client sold a property (or went through the proper procedures of a 1031 exchange to defer his potential capital gain into a new property from someone you are designating as "the seller.") This "seller" has declared bankruptcy prior to the closing, and as a result, the buyer (your client) is now outside of his 180-day period. So the 1031 has failed. Then, I would assume your client still owns the property he was trying to exchange. He should be able to locate another property if all parties can agree and effect a new 1031 exchange, but he must do this through a Qualified Intermediary. IF your client sold his property outright and received the funds, then he was not eligible to do a 1031 in the first place, and must report the gain in the year of sale.