Although it is not the preferred way to do an exchange, it is possible to set up an exchange at the very last minute. We have prepared exchange documents with less than two hours notice.
If you have actually closed, even though you have not taken possession of exchange funds, it is too late to set up an exchange. If you have the right to receive funds from the closing, you have constructive receipt of the funds, even if you have chosen not to pick up the funds.
If you establish an exchange at the last minute, all you have to lose is the cost of the intermediary’s services, usually a few hundred dollars. A small price to pay to keep exchange options open.
If you set up an exchange, divert funds to the intermediary, and decide at any time thereafter not to complete the exchange, you simply notify your intermediary to terminate the exchange. Funds will be released to you. You will have to pay the tax on the exchange funds and the cost of the intermediary’s services. There is no tax penalty.
Failure to establish an exchange before you close the sale of relinquished property, will eliminate the option to do an exchange. You cannot later decide to set up the exchange. So, when in doubt, it is usually better to start the exchange and cancel if you elect not to exchange.
If you decide to do an exchange at the last minute, you will still need to do the things any other exchanging party should do. You will just have to do those things in a compressed time period. If you will be using an accountant or a realtor, get them involved as soon as you can after establishing your exchange.
Finding suitable replacement property is usually the hardest part of an exchange. You will want to move forward in finding property as soon as possible. You will have to make your final designation of potential replacement property within 45 days of the date of closing on your relinquished property. There are no exceptions or extensions of time.