Most readers are aware of the strict 45/180-day deadlines that generally must be followed when completing a 1031 exchange. However, tax authorities do issue exceptions during times when natural disasters impact the ability of investors to meet the standard deadlines.
With the recent occurrence of weather-related disasters in parts of the US, tax authorities have granted both tax filing and 1031 exchange timeline extensions to residents in affected areas.
We want to thank IPX1031, a national Qualified Intermediary firm, for providing portions of the content in this blog.
Has Your 1031 Exchange Timeline Been Extended?
Temporarily changes have been granted due to the recent update to the disaster extensions impacting most counties in California and affected counties in Georgia and Alabama. If you are a resident of or have your principal place of business in California, Georgia, or Alabama, you may be considered an “affected taxpayer” that is eligible to significantly extend the 1031 Exchange timelines. To determine if you are an “affected taxpayer” please review this blog post and consult with your tax advisor.
The recently released update extension not only delays the tax filing deadline to October 16, 2023, it could also extend your 1031 Exchange deadlines until October 16, 2023, as well!
On 2/23/2023 and 2/24/2023, the IRS issued updates to the Disaster Notices for Alabama, both California notices (2022 winter storm and 2023 winter storm), and Georgia. Although all of the updates stated “this news release has been updated to change the filing and payment deadlines from May 15, 2023, to October 16, 2023” they also extended the 1031 deadlines to October 16, 2023. Accordingly, the new deadlines are summarized below and can be found on the IRS site cited in this blog.
California – January 2023 winter storms
Affected Taxpayers are those residing or having a business in Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba counties.
Alabama
Affected Taxpayers are those residing or having a business in Autauga, Barbour, Chambers, Conecuh, Coosa, Dallas, Elmore, Greene, Hale, Mobile, Morgan, Sumter, and Tallapoosa counties.
Georgia
Affected Taxpayers are those residing or having a business in Butts, Crisp, Henry, Jasper, Meriwether, Newton, Pike, Spalding, and Troup counties.
Allowed Extensions
- Eligible taxpayers who began a 1031 exchange between November 24, 2022, and January 8, 2023, are permitted to extend the 45-day identification period to the later of May 15, 2023, or 120 days after the original 45-day deadline date.
- Eligible taxpayers who began a 1031 exchange between July 12, 2022, and January 8, 2023, are permitted to extend the 180-day exchange period to the later of May 15, 2023, or 120 days after the original 180-day deadline date.
- Investors whose replacement properties are located in the affected areas may also be eligible for extensions.
Note that taxpayers may need to extend the time for filing their 2022 tax return to obtain these benefits.
Examples
Typically, if you were to close your investment property on April 1st, you would have until May 16th to identify property and September 28th to close (45 and 180 days respectively). With this recent extension however, you will now have until October 16th to both identify AND close your Replacement Property.
This will allow investors who are doing 1031 exchanges to take more time to do the due diligence on properties that they intend to purchase if rates start to decrease later in the year. Instead of rushing to find suitable Replacement Properties that meet your needs, you will now have more time to evaluate and select suitable replacement property options.
Summary
For more information, please refer to the following links:
Tax Relief in Disaster Situations: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations
Disaster Relief Deadline Extensions: https://www.ipx1031.com/disaster-relief-deadline-extensions/
We recommend that all investors utilize the services of experienced tax advisors when concluding 1031 exchanges since there are often other considerations outside the scope of general 1031 exchange guidelines that may impact tax obligations.
For more information on real estate tax deferral strategies and to obtain referrals to experienced real estate tax advisors, please contact us at 866 398-1031 or visit our website at www.FGG1031.com.
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