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The Importance of Form 4868
-- By Pushpa Sathish, Staff Writer
In certain 1031 exchanges, the 180-day deadline for the purchase of the replacement property and the closure of the exchange may fall in the tax year after the one in which the relinquished property was sold. In such cases, the exchanger has to file the necessary tax forms to ensure that the exchange qualifies for a tax deferral. Filing the Form 4868 Application for Extension to File Tax Return will make your exchange be treated as a taxable sale made on an installment basis.
If the exchanger closes the exchange within the mandated 180 days, he defers his capital gains taxes. Otherwise, he is considered to have under-reported his income for the year in which he sold his relinquished property, and thus liable to interest and penalties.
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