1031 Exchange question -- what if you don't find a property?

[Sarah Thornton]

Hello, 

I'm new here and have one burning question I have not yet found the answer to. 

My husband and I are looking to sell an investment property and buy another one w/ the proceeds. I understand that the new property needs to be identified within 45 days and fully executed by 180-days of sale of the initial property. 

My question is 1) how strict is the "identifying" period? Is it easy to change course?

And 2) If you opt for the exchange and then for whatever reason are unable to complete it, is there a penalty aside from whatever capital gains, etc. you would have paid selling outright without the exchange?

Many thanks in advance for the help!

[Dave Foster]

@Sarah Thornton, The way the mechanics of a 1031 exchange work is that your exchange will always be either complete or dead before you have to file your next tax return. If you complete a 1031 exchange your accountant files the form 8824 which reports the 1031 exchange.  If your exchange dies or fails to complete then the accountant simply take the 1099 that was given to you by the title company at close and files your tax return as if the 1031 never happened.

Bottom line - there is no penalty for starting and not completing a 1031 exchange.

But - there is no give to the time lines at all as others have said.  If you miss a deadline your exchange dies.