Are Multiple Relinquished Properties Allowed?

(“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger s often ask whether they can start a 1031 exchange by selling an investment property, and then sell a second investment property as part of that same exchange, after the 45-day identification period closes. The short answer is yes.

The typical Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange transaction involves selling one property, identifying potential replacement properties within the 45-day Identification Period, and then acquiring one or more of those identified properties within the 180-day Exchange Period. The Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange regulations provide that, “If, as part of the same deferred exchange, the taxpayer transfers more than one relinquished property and the relinquished properties are transferred on different dates, the identification period and the exchange period are determined with reference to the earliest date on which any of the properties are transferred.”

Consider the following Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange scenario:

• (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger transfers Relinquished Property A on June 1, 2023
• The 45-day Section 1031(a)(3) and Section 1.1031(k)-1(c) provides that a written unambiguous description of the intended replacement property or properties, signed by the taxpayer must be sent to the qualified intermediary or other person who is a party to the exchange and who is not a disqualified person. Identification Period ends on July 16, 2023
• The 180-day Interim time between the disposition of the relinquished property and the earlier of the following: (i) acquisition of all replacement properties by the taxpayer; (ii) after the 45 day identification period if an identification has not been made or any identified properties have been previously received by the taxpayer or revoked as identified properties; (iii) the 180th day thereafter; (iv) after the taxpayer’s deadline for filing its federal income tax return for the year in which the relinquished property was disposed in (including extensions). Note—The exchange period includes all weekends and holidays. Exchange Period ends on November 28, 2023
• On July 16, (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger properly identifies Property Z as Replacement Property
• On August 1, 2023 (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger disposes of additional investment property, Property B, as another Relinquished Property within the same exchange
• (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger acquires the identified Replacement Property, Property Z, on September 1, 2023

The above scenario is entirely permissible, since (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger has transferred both of the Relinquished Properties before acquiring the Replacement Property.

Similarly, Exchanger could have identified Properties X, Y & Z during the Identification Period, and thereafter acquired Properties Y & Z, provided both acquisitions were completed within the 180-day Interim time between the disposition of the relinquished property and the earlier of the following: (i) acquisition of all replacement properties by the taxpayer; (ii) after the 45 day identification period if an identification has not been made or any identified properties have been previously received by the taxpayer or revoked as identified properties; (iii) the 180th day thereafter; (iv) after the taxpayer’s deadline for filing its federal income tax return for the year in which the relinquished property was disposed in (including extensions). Note—The exchange period includes all weekends and holidays. Exchange Period . 

In the above scenario, (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger should be aware of the following considerations to ensure for full tax deferral: 

1. Property Z is worth equal or more than the combined value of Properties A & B
2. All of the exchange cash generated by the dispositions of Properties A & B are applied toward the acquisition of Property Z
3. Any debt retired upon the transfer of Properties A & B was replaced with new debt or new cash in the acquisition of Property Z