The Starker Deferred Exchange, also known as a delayed or deferred exchange, is a type of like-kind exchange that allows for a delay in determining the replacement property. This type of exchange may be necessary when you have not yet determined your needs for replacement property, when a potential buyer has not yet acquired property to exchange with you, or when you have found a property, you want but have not yet found a property the other party is willing to accept in exchange.
To qualify for a deferred exchange under the like-kind exchange rules, certain time limits must be met. The property you are to receive as replacement must be identified in writing no later than 45 days after your property is transferred. The identification must clearly describe the property in detail. The actual transfer of the replacement property must occur no later than the earlier of 180 days after your property is transferred or the due date (including extensions) of your tax return for the year in which you gave up your property.
It is important to note that if you transfer your property late in the year, you may have a shorter time frame to receive the replacement property. For example, if you transfer your property on December 10th and do not get a tax return filing extension, you will need to receive the replacement property by April 15th, which is earlier than the 180-day mark from December 10th. However, filing extensions can provide additional time. It is not possible to obtain extensions on the 45- or 180-day periods themselves.
If the time limits of a deferred exchange are too restrictive, alternative arrangements can be considered. These arrangements may involve leasing the property to the other party instead of transferring it outright, granting an option to buy the property when the replacement property becomes available, or transferring the property to an independent trust or escrow arrangement until the exchange can be made.
Another option is a qualified exchange accommodation arrangement, which is a special transaction recognized by the IRS. In this arrangement, the property you want to acquire is transferred to an accommodation party until the property you will relinquish has been identified. This arrangement requires you to identify the property you intend to exchange within 45 days of the date the replacement property is transferred to the accommodation party. It is important to follow the IRS rules precisely to qualify for favorable tax treatment in this type of transaction.