When conducting a 1031 exchange, clients often ask “how soon can I schedule the closing of my new replacement property after the completion of the closing of my old relinquished property?” That’s a great question. It’s important to leave a little buffer time between the two closing dates. We explain why in this article.
2-3 Business Days
The safe answer is to schedule two or three business days between the two closings.
On reason for this buffer time is there may be an unexpected delay with the purchaser’s closing of the old relinquished property that slows the process down and is outside of your control.
Another reason is that the closing agent for the old relinquished property may not immediately wire out the 1031 funds (net proceeds) if the closing occurs late in the day, and they miss the cut off with the federal reserve (or their bank) to transfer the funds on the same day as the closing of the relinquished property. If the closing of the old relinquished property occurs late on a Friday, the qualified intermediary may not actually receive the 1031 funds until mid-day on Monday.
Payment via Check
Finally, some closings (particularly on the East Coast) are still conducted with payment made by checks rather than by wire transfer. If a check is used to pay for the relinquished property, the qualified intermediary may not have “good funds” for a few days, because the check must be physically mailed or sent by overnight delivery to the qualified intermediary, then physically deposited into the bank. The check has to clear the bank before they are actually available for use to purchase the replacement property. The process of a check clearing through to the depository bank may take a few days, or in some situations up to ten (10) days.