<p>For a majority of IRS Tax dates, should a deadline fall on a weekend or holiday, you have until the following business day to complete that task. For example, if Tax Day, April 15, falls on a Saturday then you have until Monday, April 17 to file your individual tax return. The same is NOT true for your 1031 Exchange timeline requirements. 1031 Exchanges are unique in that federal holidays, and weekends, count as any other day in your 45-day Identification and 180-day exchange periods.</p>

<p>We are often asked, “If one of my 1031 Exchange deadlines fall on a non-business day or afederal holiday, does that mean I have until the following business day to complete the task?”</p>

<p>The answer isn’t what you might assume. The short answer is No. If one of your exchange timeline requirements, such as your 45-day Identification or your 180-day exchange period falls on a federal holiday, or even just a weekend, you do NOT have until the following business day. In order for your 1031 exchange to remain valid you need to complete the task on or prior to the date of business closure, whether that be due to a federal holiday or weekend.</p>

<p>Below is a breakdown of how you should treat your 1031 Exchange timelines should they fall on federal holidays or weekends:</p>

<h2>45-day Identification Period</h2>

<p>Your 45-day Identification Period is relatively unaffected by federal holidays and weekends. Below are excerpts from the Regulations:</p>

<p style="margin-left:.5in;">(b) IDENTIFICATION &amp; RECEIPT REQUIREMENTS</p>

<p style="margin-left:.75in;">(1) IN GENERAL. In the case of a deferred exchange, any replacement property received by the taxpayer will be treated as property which is not of a like kind to the relinquished property if –</p>

<p style="margin-left:.95in;">(i) The replacement property is not "identified" before the end of the "identification period," or</p>

<p style="margin-left:.95in;">(ii) The identified replacement property is not received before the end of the "exchange period."</p>

<p style="margin-left:.75in;">(2) IDENTIFICATION PERIOD AND EXCHANGE PERIOD.</p>

<p style="margin-left:.95in;">(i) The identification period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the 45th day thereafter.</p>

<p style="margin-left:.95in;">(ii) The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer's return of the tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.</p>

<p style="margin-left:.5in;">****</p>

<p style="margin-left:.75in;">(2) MANNER OF IDENTIFYING REPLACEMENT PROPERTY. Replacement property is identified only if it is designated as replacement property in a written document signed by the taxpayer and hand delivered, mailed, telecopied, or otherwise sent before the end of the identification period to either –</p>

<p style="margin-left:.95in;">(i) The person obligated to transfer the replacement property to the taxpayer (regardless of whether that person is a disqualified person as defined in paragraph (k) of this section); or</p>

<p style="margin-left:.95in;">(ii) Any other person involved in the exchange other than the taxpayer or a disqualified person (as defined in paragraph (k) of this section).</p>

<p style="margin-left:.95in;">(iii) Examples of persons involved in the exchange include any of the parties to the exchange, an intermediary, an escrow agent, and a title company. An identification of replacement property made in a written agreement for the exchange of properties signed by all parties thereto before the end of the identification period will be treated as satisfying the requirements of this paragraph (c)(2).</p>

<p style="margin-left:.75in;">(3) DESCRIPTION OF REPLACEMENT PROPERTY. Based on the above regulations, even if day 45 falls on a weekend or federal holiday, when most businesses in the industry are closed, you could technically still submit the identification on day 45 via email, fax, or mail so long as all the above requirements are fulfilled. That being said, we strongly encourage you to complete your identification in advance of day 45, so you don’t risk the chance of missing this critical deadline.</p>

<h2>&nbsp;</h2>

<h2>180-day Exchange Period</h2>

<p>Alternatively, your 180-day Exchange deadline can be affected by federal holidays or weekends. If day 180 falls on a federal holiday, or weekend, you will need to complete the purchase of your replacement property PRIOR to day 180 because the parties responsible for facilitating the purchase closing will likely be closed and unable to complete the close of the Replacement Property purchase on day 180.</p>

<h2>2023 Federal Holidays</h2>

<p>Below are the recognized Federal Holiday by the IRS for the upcoming year, 2023:</p>

<table border="1" cellpadding="1" cellspacing="1" style="width: 500px;">
<thead>
<tr>
<th scope="row">Date</th>
<th scope="col">Holiday</th>
</tr>
</thead>
<tbody>
<tr>
<th scope="row">Monday, January 02 *</th>
<td>&nbsp;New Year's Day</td>
</tr>
<tr>
<th scope="row">Monday, January 16</th>
<td>&nbsp;Birthday of Martin Luther King, Jr.</td>
</tr>
<tr>
<th scope="row">Monday, February 20 **</th>
<td>&nbsp;Washington's Birthday</td>
</tr>
<tr>
<th scope="row">Monday, May 29</th>
<td>&nbsp;Memorial Day</td>
</tr>
<tr>
<th scope="row">Monday June 19</th>
<td>&nbsp;Juneteenth National Independence Day</td>
</tr>
<tr>
<th scope="row">Tuesday, July 04</th>
<td>&nbsp;Independence Day</td>
</tr>
<tr>
<th scope="row">Monday, September 04</th>
<td>&nbsp;Labor Day</td>
</tr>
<tr>
<th scope="row">Monday, October 09</th>
<td>&nbsp;Columbus Day</td>
</tr>
<tr>
<th scope="row">Friday, November 10 *</th>
<td>&nbsp;Veterans Day</td>
</tr>
<tr>
<th scope="row">Thursday, November 23</th>
<td>&nbsp;Thanksgiving Day</td>
</tr>
<tr>
<th scope="row">Monday, December 25</th>
<td>&nbsp;Christmas Day</td>
</tr>
</tbody>
</table>

<p><br />
<sup><em>*If a holiday falls on a Saturday, for most Federal employees, the preceding Friday will be treated as a holiday for pay and leave purposes. (See 5 U.S.C. 6103(b).) If a holiday falls on a Sunday, for most Federal employees, the following Monday will be treated as a holiday for pay and leave purposes. (See Section 3(a) of Executive Order 11582, February 11, 1971.) See also our Federal Holidays – "In Lieu Of" Determination Fact Sheet at https://www.opm.gov/policy-data-oversight/pay-leave/work-schedules/fact…;

<p>^{<em>**This holiday is designated as "Washington’s Birthday" in section 6103(a) of title 5 of the United States Code, which is the law that specifies holidays for Federal employees. Though other institutions such as state and local governments and private businesses may use other names, it is our policy to always refer to holidays by the names designated in the law. Your Qualified Intermediary (QI) will work closely with you to ensure you are aware of your upcoming 1031 Exchange timeline requirements, but don’t assume your 1031 Exchange recognizes government office closures.</em>}</p>

<p>&nbsp;</p>

<p><span style="font-size:12pt"><span style="font-family:Calibri,sans-serif">Your Qualified Intermediary (QI) will work closely with you to ensure you are aware of your upcoming 1031 Exchange timeline requirements, but don’t assume your 1031 Exchange recognizes government office closures. </span></span></p>

<h2>How to do Seller Financing in a 1031 Exchange?&nbsp;</h2>

<p>Our infographic below covers the process of Seller Financing in a 1031 Exchange at high level.</p>

<p>&nbsp;</p>

<drupal-media data-align="center" data-entity-type="media" data-entity-uuid="e099040d-ddb4-47f9-a8a1-48d9f1715da3" data-view-mode="image_700w"></drupal-media>

<p class="text-align-center">&nbsp;</p>

<p class="text-align-center">For more information on Seller Financing in relation to a 1031 Exchange, reach out to our team of experts!&nbsp;&nbsp;</p>

<p>At times, in the course of real estate ownership, an involuntary transfer of title the property occurs. A couple’s divorce generally results in the property being sold to a third party or one of the former spouses conveying the property to the other spouse. Also, a spouse may pass away during the period between the sale of a relinquished property and purchase of a replacement property. What is the effect on 1031 exchanges of these changes in legal ownership?</p>

<p>If a divorced couple wishes to sell an investment/business use property to a third party, there are no real issues for a 1031 exchange. Regardless of having been joint tenants and filing taxes jointly, each spouse may do their own exchange or cash out. Typically, the joint tenancy would have been severed as part of the divorce proceeding. The title can also be severed prior to a divorce, by one joint tenant by signing a deed naming the grantor spouse as the transferee of the one half tenancy-in-common interest.</p>

<p>At times, part of a divorce settlement agreement will provide that one spouse transfers to the other spouse the interest of the exiting spouse. Under <a href="https://uscode.house.gov/view.xhtml?req=(title:26%20section:1041%20edit…; title="IRC Section 1041">IRC Section 1041</a>, when a spouse conveys property to the other spouse as part of a divorce, there is no taxable event for the party transferring the property and the basis of the transferee (the recipient) becomes the adjusted basis of the transferor. Should the transferee of the property wish to later sell the property and effect an exchange, he/she would have to exchange the entire value of the property to achieve full tax deferral.</p>

<p>Inherent in any 1031 exchange is the fact that the taxpayer must hold the property for investment or for use in a business. Even though the party receiving the other spouse’s interest assumes the former spouse’s basis, it does not mean that he/she takes over the other spouse’s holding period. It would be prudent in these cases to hold the full property ownership for a material period before selling. Two years or more would be best but at least longer than a year or two tax reporting periods would be helpful in meeting the <a href="/blog/1031-exchange-holding-period-requirements" title="1031 Exchange Holding Requirement">holding requirement</a>.</p>

<p>On occasion a taxpayer in a non-divorce situation may pass away between the closing of the relinquished property sale and the replacement property acquisition. While the heirs might like to receive a stepped up basis in the property, unfortunately, that will not be the result in this set of circumstances. It may be of some consolation that pursuant to several IRS Letter Rulings, the heirs/estate may continue the 1031 exchange transaction and obtain tax deferral, if not a stepped up basis.</p>

<h2>What is Seller Financing?</h2>

<p>Simply put, seller financing is when the Seller of a property lends the funds for the purchase of the property to the Buyer, rather than the Buyer acquiring the funds through a financial institution. <a href="/blog/seller-financing-part-1031-exchange" title="Seller Financing Part of a 1031 Exchange">Read this blog</a> for a more detailed explanation of Seller Financing.</p>

<h2>Reasons for Seller Financing</h2>

<p>There are many reasons why Seller Financing may be considered in a real estate transaction. Some of the most common reasons could include:</p>

<ul>
<li>A more favorable interest rate through Seller Financing due to increasing interest rates at financial institutions</li>
<li>Both parties want a quick transaction and the financial institution’s loan process will take too long</li>
<li>Buyer wants a short-term note, for example 6 months, and the financial institution requires a longer term</li>
<li>Buyer has poor credit hindering a loan from a financial institution</li>
<li>Seller is eager to sell the property and offers Seller Financing to encourage a Buyer who might be otherwise hesitate due to high interest rates</li>
</ul>

<h2>Advantages of Seller Financing</h2>

<p>A transaction utilizing Seller Financing can be mutually beneficial to both the Buyer and the Seller of a real estate transaction. One shared benefit of Seller Financing is that the real estate transaction could be completed in a much speedier manner without third party lending.</p>

<p>Some other advantages for the Seller and Buyer include:</p>

<h3>Advantages of Seller Financing for the Seller</h3>

<ul>
<li>Lending the money to the Buyer could allow the Seller to earn more money on their funds than they would by depositing the money into a traditional savings account</li>
<li>Seller Financing allows the Seller to have more control over the entire real estate transaction. They know the financing is there so some of the question marks, issues, etc. that could arise with third party lending will not be a factor</li>
<li>Should the Buyer default on the loan, the Seller can foreclose on the loan and potential receive their property back without the need to return any previous payments</li>
</ul>

<h3>Advantages of Buyer Financing for the Buyer</h3>

<ul>
<li>The Buyer may get a lower interest rate, or other more favorable terms, with the Seller than through a financial institution</li>
<li>The loan process with the Seller could be much less complicated than the loan process through a financial institution</li>
<li>Reduced closing costs could be associated with Seller Financing • Seller Financing could allow for a more flexible or lower down payment</li>
</ul>

<h2>Example of Seller Financing</h2>

<p>Here is a basic example of how Seller Financing can be mutually beneficial financially for both the Buyer and the Seller of the real estate transaction.</p>

<p>Typical savings account interest rate - 0.5%</p>

<p>Average financial institution loan interest rate – 4%</p>

<p>Loan Amount - $500,000</p>

<p>If the Seller deposited their $500,000 in a savings account at a financial institution, he would earn $2500 in interest over a full year. However, if the Seller offered the Buyer an interest rate of 2% on a loan of $500,000, the Seller would earn $10,000 in interest over a year on the loan. Alternatively, if the Buyer got a loan from a financial institution at 4%, he would pay $20,000 in interest over a year to the financial institution, but he would only be paying $10,000 in interest should he accept Seller Financing at the discounted interest rate of 2%.</p>

<p>There are additional considerations for Seller financing as part of a 1031 exchange. <a href="/blog/seller-financing-1031-tax-deferred-exchange" title="Seller Financing in a 1031 Exchange">Learn more about them in this blog article.</a>&nbsp;</p>

<p>The <a href="https://www.realized1031.com/delaware-statutory-trust&quot; title="Realized DST Explanation">Delaware Statutory Trust (DST)</a> market has grown in popularity over the last few years. According to a report by Robert A. Stanger &amp; Co., the DST market <a href="https://thediwire.com/delaware-statutory-trust-offerings-on-pace-for-re…; title="DST record setting year">raised $1.7 billion through February 2022</a>, putting it on pace to be one of the largest years on record for DST offerings. There is no surprise that the DST market is heating up. As more and more deals become available, investors are looking for ways to defer their capital gains and benefit from the passive nature of DSTs. Although DSTs have been well received by investors as a replacement property option for 1031 exchanges, this type of investment should be more than a “plug-and-play” scenario. With the high velocity of deals and sometimes limited supply available in the market, performing the proper due diligence can help an investor ensure they aren’t exposing themselves to an unnecessary amount of risk.</p>

<p>In order to help you as an investor determine the good deals from the bad, Realized has provided a list of some of the questions you should consider before investing in a DST.</p>

<h2>What Should You Know Before Investing?</h2>

<p>Although DST offerings pass through several hands before making their way to investors, it is important to have a grasp on exactly what you’re entering into. Knowing and evaluating the details around a potential DST investment may keep you out of an unnecessarily risky offering. Here are some of the questions to ask when evaluating a DST offering:</p>

<ul>
<li><strong>Who is the Sponsor and what is their track record?</strong> Has the Sponsor had experience with this type of investment? How has the Sponsor managed investments in different points of the real estate cycle? Although the internet is helpful in researching a Sponsor’s background, every offering memorandum includes the Sponsor’s prior performance. However, past performance does not guarantee future results.<br />
&nbsp;</li>
<li><strong>Are the projected financials reasonable?</strong> Returns are projected and based off a Sponsor’s own models and assumptions as to how a particular property will perform. These projections try to predict rent growth and occupancy levels, and there is typically no context to their underwriting. Referring to market reports and appraisals is a good first step in determining whether a deal’s financial projections are reasonable.<br />
&nbsp;</li>
<li><strong>What do the fees look like?</strong> Almost every Sponsor will take certain fees such as an acquisition fee, a disposition fee, and an asset management fee. Assess the competitiveness of these fees to determine if they will detract from your return.<br />
&nbsp;</li>
<li><strong>What is the intended exit strategy?</strong> As DSTs have gained popularity in the 1031 space, Sponsors have developed new ways to exit an investment. Sponsors utilize both third-party sales and <a href="https://www.realized1031.com/glossary/721-upreit-exchange&quot; title="Realized UPREIT exit strategies">UPREIT exit</a> strategies. Assessing your long-term goals can help determine if the exit strategy aligns with your goals.</li>
</ul>

<h2>Additional Considerations</h2>

<p>In addition to reviewing details about the specific DST investment, there are other factors to evaluate before making an investment decision.</p>

<ul>
<li><strong>What are the geographic risk factors for this property’s location?</strong> It’s helpful to review the property’s surrounding metro to assess demand drivers and employment drivers as these ultimately drive long-term prospectus for a project. Additionally, investors should consider submarket trends including occupancy rates and median household income in the area.<br />
&nbsp;</li>
<li><strong>How might general market risks potentially affect performance?</strong> Another set of factors to consider are general market risks associated with real estate investments, such as the kind of appreciation an investor can expect. Additionally, how might current market debts affect the long-term prospects of the deal?</li>
</ul>

<p>There are a lot of factors you should evaluate before making an investment decision. Reviewing the DST offering, as well as researching the area where the investment is located, are large parts of the DST due diligence process. With the added uncertainty surrounding inflation and rising interest rates, consulting a professional can help you better understand the risks associated with an investment and whether a DST offering is likely to meet your long-term goals and objectives.</p>

<p>&nbsp;</p>

<p><strong>Authored by Realized®.</strong></p>

<p>Realized helps you exchange 1031-eligible investment properties for portfolios of commercial real estate that are customized to your shifting income needs, risk appetite, and investment goals across generations. By creating portfolios of fractional interests in Delaware Statutory Trusts (DSTs), Realized makes it easy to diversify investments across real estate sectors, geographies, and Sponsors.</p>

<p>Contact <a href="https://www.realized1031.com/&quot; title="Realized Website">Realized</a> to learn more about their due diligence and portfolio construction methodologies.</p>

<p>&nbsp;</p>

<p><em>This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. </em></p>

<p><em>Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.</em></p>

<p>In today’s market with inflation at a multi-decade high and escalating interest rates many businesses want to “wait and see”, rather than “adapt and act”. We believe if you aren’t moving forward, you are moving backwards, and now is the perfect time to reinvest into your business and improve your 1031 exchange infrastructure – if you don’t, know that others will.&nbsp;</p>

<p>Exchange Manager Pro^SM, the only patented 1031 exchange web-enabled workflow, is proving its worth time and time again as Qualified Intermediaries (QI) across the country continue to license and implement the software in their own organizations.</p>

<p>Features of Exchange Manager Pro^SM include:</p>

<ul>
<li>Standardized workflow with embedded controls to ensure exchange compliance</li>
<li>Single data entry to reduce data redundancies and potential for errors</li>
<li>Automated document creation and execution</li>
<li>Calendar-view of all exchanges, with automated reminders to ensure timeliness</li>
<li>Central repository for all exchange documents with robust reporting options</li>
</ul>

<p>Exchange Manager Pro^SM QI clients are experiencing the following since implementing the revolutionary 1031 workflow technology:</p>

<ul>
<li>30-50% reduction in time spent on mundane, tedious administrative tasks</li>
<li>Increased efficiencies with up to 35% reduction in processing times</li>
<li>Reduced operating expense by replacing costly and typically antiquated software programs including client databases, electronic signature applications, and file storage systems</li>
</ul>

<p>Exchange Manager Pro^SM delivers on the expectations of today’s exchanger, including real-time access to exchange data, timely completion of requests, and the ability to handle last minute closings without skipping a beat. As a QI, don’t just meet, but strive to exceed these elevated expectations, Exchange Manager Pro^SM makes that possible.</p>

<p>With 2023 just around the corner and the first quarter being the most active for 1031 exchanges historically, now is the time to act on improving and scaling your QI processes.</p>