What happens if my financing falls through in the middle of the exchange window?

Question

Turnrow Capital · Accepted Answer

If you cannot close by day 180, the exchange fails and your full gain becomes taxable — the IRS grants no extension because a lender withdrew. This is the classic exchange killer. The fix is speed: Turnrow issues term sheets in 24–48 hours and closes in 2–4 weeks, viable even at day 150.

Here is how it usually dies. A bank pre-approves the exchanger, everyone relaxes, and around day 120 underwriting surfaces a problem: the appraisal reads "rural residual," the entity structure confuses committee, or last year's Schedule F shows a drought loss. The bank does not say no — it says "we need more time." The exchange window does not have more time. On a $1M deferred gain, the miss can cost $250,000 or more in tax.

Prevention beats rescue. Get a written term sheet — not a verbal pre-qualification — before your 45-day identification letter goes in. Ask any lender the only question that matters: what is your committed timeline from application to funded, in writing, and what has to be true for it to hold?

If you are already deep in the window with a wobbling lender, a bridge loan is the standard rescue: close the exchange on short-term financing, preserve the deferral, then refinance into long-term farm credit on your own schedule. Paying bridge pricing for 12 months is almost always cheaper than paying the capital gains tax forever.