287. Exploring Advanced 1031 Exchanges and Partnership Divisions with Matt Rappaport, Esq., LL.M.
Tax Smart Real Estate Investors Podcast
Navigating the Complexities of Non-Safe Harbor 1031 Exchanges
The traditional 180-day safe harbor period for 1031 exchanges can be extended through non-safe harbor exchanges, specifically in cases of reverse exchanges where construction is involved. In these scenarios, the qualified intermediary (QI) can provide superior ownership evidence while maintaining a more arms-length relationship with the taxpayer. This structure allows for construction funding and extended timelines beyond the typical safe harbor period, which was validated by the 2016 Bartel tax court decision. Despite IRS skepticism and potential challenges, non-safe harbor exchanges have gained traction, especially for those willing to accept additional risks and navigate complexities such as permitting and timing issues. These exchanges enable the use of 1031 funds for both acquisition and construction, making them an attractive option for developers. However, practitioners should remain aware of the ongoing potential for IRS scrutiny and plan accordingly.
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