title>Tax Guru-Ker$tetter Letter Wizard Animation

                 

Tax Guru-Ker$tetter Letter
Saturday, February 11, 2006
 
Penalties On Failed Exchange

Q:

Subject: Exchange Question

If a Section 1031 exchange is set up, but cancelled when one of the partners cashes out, are there any IRS penalties?

Thanks.

A:

If an exchange falls apart before being finalized, the disposal will be reclassified as a fully taxable sale, which would generally result in high taxes and possible late payment penalties.  There is no separate penalty on the failed exchange itself.

Kerry Kerstetter

 

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