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The 1031 tax exchange process is one that should be begun with a certain amount of pre-planning and thought; the process contains ample opportunity for the unwary property investor to make a misstep. Keeping this in mind, you might be somewhat skittish about beginning the 1031 process without being certain that you will be able to follow the process to completion. In all actuality, though, the perils of starting the 1031 process don't have to be as unmanageable as they might, at first glance, seem. Beginning the 1031 process isn't in any way a total commitment – in all actuality, many of the smartest investors who are selling a piece of property will begin the 1031 exchange process simply for the purpose of keeping their options open. This is because, if one starts out on the path of a exchange, there are several opportunities to back out and simply sell the property, while starting out along the path of selling outright removes altogether the option of a 1031 tax exchange. There is actually no reason to worry about the possibility of having a change of heart in the course of a 1031 tax exchange. The only thing you actually have to do in order to keep your options open is be aware of the time frames involved in the process of an exchange, as they'll be the major determining factor of when you will get the opportunity to receive the money that would have been transferred to your replacement property had you chosen to go through with the exchange. After you close the sale of your relinquished property, the proceeds of the sale are transferred directly to your intermediary. After this has occurred, the the first opportunity you will have to retrieve your proceeds from the qualified intermediary is after a forty-five day period, in which time you are supposed to have identified a suitable replacement property. If this deadline arrives without your having identified a replacement property, the 1031 process will automatically be terminated and you will be able to receive your proceeds. If you've identified a replacement property prior to deciding that you do not want to go through with the exchange, you can simply revoke the identification before the 45 days have passed, and the exchange will end. If you are past this stage of the process, the next opportunity to retrieve your proceeds will be after another 180 days, the deadline assigned for closing on a replacement property. However, if your tax return occurs during the 180 days, you may shorten this waiting period. Provided that you don't ask for an extension on your return, you are able at this point to tell your qualified intermediary that the exchange is over and receive your {proceeds. At the end of the day, it is always best to prepare for whatever contingencies might arise; starting a 1031 exchange when you are unsure what will happen in the future can, in fact, be advantageous, in that it keeps both options open. Provided that you stay aware of the time frames involved in the process, you can have the freedom to back out of the exchange if there is a change in your circumstances.
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