You may not use any of the net proceeds from the sale of your property for anything except investing in the replacement property, without tax consequences.

Once you identify the property that you want to buy, but decide after day 45 that you don’t want to purchase it, and you want the proceeds returned to you, this would be an early disbursement. This would be contrary to the Exchange Agreement you entered into with the Qualified Intermediary. Therefore, the proceeds will be disbursed to you on the 181st day.

You will have a reduced basis in your replacement property, resulting from the carry-over basis of the property you sell. If you eventually sell the replacement property, you will realize more gain than if you had acquired the property through a straight sale and purchase.


NOTE: The content of this website is informational only. It does not constitute tax, legal or accounting advice. Each situation is different and you are advised to seek appropriate professional advice to see if a 1031 Exchange meets your needs.