The 180 day deadline issue must be carefully considered by NNN investors in a 1031 exchange together with the impact of filing an extension for tax returns. Extensions are easily given by the IRS, BUT filing an extension does not extend the time to pay due tax. Triple net property investors must work with their tax advisors to make estimated federal (or state tax) payments to avoid interest and penalties, despite obtaining an extension. Here are some tips to file an extension:
Use these IRS forms: 7004, 1138, 4768, 8868,8892 etc.
File your extension request no later than the regular due date of a return.
Obtain an extension by electronically paying all or part of the estimated income tax due and indicating that the payment is for an extension.
NNN triple net lease investors are well aware that IRS code for section 1031 requires the acquisition of replacement property by the earlier of two dates:
~the due date for filing federal taxes for the calendar year in which the exchange was first initiated or;
~180 days from the sale of the relinquished property.
Net lease investors must note that a filed federal tax return cannot be amended later to include a 1031 exchange or add days to complete this same 1031 exchange. If a triple net lease investor files a tax return a 1031 exchange is concluded, the sale of the relinquished property loses its tax deferral benefits!
All of the above pertains to 1031 exchanges of NNN property that were started after mid-October but before the next January 1. It may be that triple net lease property investors with 1031 exchanges commencing in the last quarter of a calendar year, may not have all 180 days to finish their exchange! Once a 1031 exchange is concluded, NNN triple net lease investors should immediately file their request for extension and ensure that their federal tax return is filed prior to the last date stated in the extension request.
EXAMPLE:
M is a corporation that files its Federal income tax return on a calendar year basis. M and C enter into an agreement for an exchange of net lease property that requires M to transfer property X to C. Under the agreement, M is to identify like-kind replacement NNN property which C is required to purchase and to transfer to M. M transfers NNN property X to C on November 16, 2022.
The identification period ends at midnight on December 31, 2022, the day which is 45 days after the date of transfer of NNN property X. The exchange period ends at midnight on March 15, 2023, the due date for M’s Federal income tax return for the taxable year in which M transferred property X. However, if M is allowed the automatic six-month extension for filing its tax return, the exchange period ends at midnight on May 15, 2023, the day which is 180 days after the date of transfer of property X.
Consult our experts at The Triple Net Investment Group led by Broker Robert Gamzeh, for outstanding advice on your 1031 NNN exchange. Be assured that you will be guided to the quickest tax efficient route for your triple net lease transaction now and in the future.