GREAT NEWS: The Internal Revenue Service has approved welcomed relief for 1031 Exchangers who, as result of COVID-19 related challenges, were struggling to meet previously published timelines for identifying and concluding acquisition of “like-kind” replacement properties.
On April 9, 2020, the IRS published Notice 2020-23 (the “Notice”), which provides that the former 1031 Exchange 45-day identification and 180-day acquisition deadlines that fall on or after April 1, 2020 can be extended to July 15, 2020. Identification and acquisition deadlines that took place prior to April 1, or are scheduled for after July 15, will remain unaffected.
The most important take-away for any rental property owners who are engaged in or planning for a 1031 Exchange whose 45-day identification period or 180-day closing period initially occurred on or after April 1 and before July 15, 2020, is that they may now have up to July 15, 2020, to either identify their replacement property or close on their transaction.
Example 1: Exchange began April 1, 2020. 45th day is May 16, which would be extended to July 15, 2020. Taxpayer must still close on replacement property by Sept 28, which is the 180th day; because Sept 28 is after the last day of the disaster period (July 15).
Example 2: Exchange began Dec 31, 2019, 45th day is Feb 14, 2020. ID period is not extended because it is before April 1. The 180th day is June 28, which would be extended to July 15, 2020.
Rental property owners should verify with a qualified tax advisor that their tax obligations to states in which they reside or where their property is located have also been extended to conform to the IRS Notice. If this is not clear-cut (and it may not be due to delays in states reacting to the Notice), a tax advisor may recommend that rental property owners adhere to the traditional 45/180 day deadlines and only take advantage of any extensions at the state level when appropriate notices have been provided.
The option to extend 1031 Exchange deadlines is voluntary and, as prior to the Notice, if a rental property owner finds advantages in completing their 1031 Exchange requirements prior to July 15th (e.g., to begin receiving rental income from the replacement property, to begin needed repairs, etc.), they are free to do so.
COVID-19 shelter in place regulations have impacted the ability of many local county recording offices to complete timely recording of property transfers. With respect to 1031 Exchanges, the transfer of one property to another generally is completed when the terms of the purchase and sale agreement have been satisfied and the buyer receives possession of the replacement property. The recording of a deed by the county recorder formally documents what has already happened when ownership was transferred and delays in recording process should not impact 1031 Exchange.
We encourage all exchangers to promptly discuss the qualifications for an extension, as well as the benefits and/or drawbacks to an extension with their legal and/or tax advisor. If, after such consultation, there is a benefit and desire to take advantage of an extension to July 15, First Guardian Group is available to assist.
FIRST GUARDIAN GROUP IS OPEN FOR BUSINESS
We are open for business and stand ready to assist with your exchange transaction. If you need a personal exchange consultation, we are happy to schedule a conference call at a time that works with your schedule and situation.
Please do not hesitate to contact us with your questions or concerns in these uncertain times. We look forward to hearing from you.
For more information or to schedule a consultations, please contact us at 408 392-8822 or via email at info@FirstGuardianGroup.com
Footnotes:
1. https://www.adisa.org/news/current-news/irs-extends-time-1031s-qoza
2. But not beyond the due date (including extensions) of the taxpayer’s tax return for the year of transfer.
3. https://www.ipx1031.com/covid19_1031_extensions/
ADDITIONAL REFERENCES:
IRS Notice 2020-23: https://www.irs.gov/pub/irs-drop/n-20-23.pdf
LATEST IRS COVID-19 News: https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments