March 13, 2020
This week, we have seen an increased number of inquiries regarding the effect of the Coronavirus (COVID-19) outbreak on the strict deadlines (45-day identification and 180-day exchange period) for a 1031 exchange. Currently, we are not aware of any extensions of the exchange deadlines and those currently conducting an exchange should plan to proceed as usual, with their applicable deadlines. However, a potential extension for affected taxpayers could happen due to the widespread effect of the outbreak.
Per the rules, an extension of the exchange deadlines requires a presidentially declared disaster. In the event of a federally declared disaster, an exchanger may be eligible for an extension of either deadline, or both (IRS notices can be retroactive). In general, to qualify for an extension, the deadline must fall on or after the date of the Federally declared disaster. Presidentially declared disasters are specific to affected areas – the IRS designates eligible areas on a county by county basis, in a published notice. These IRS notices specify which counties have been affected and the type and duration of relief provided. For exchangers to obtain extensions, the notice must specifically mention IRS Rev. Proc. 2007-56, section 17 of which provides that an “affected tax-payer” may be eligible for a time extension for the later of 120 days or the date listed on the IRS Notice. https://www.irs.gov/newsroom/tax-relief-in-disaster-situations. If the 45-day period had expired before disaster declaration the exchanger would only be able to extend the 180-day deadline, unless identified property was substantially damaged.
While some exchanges could potentially be eligible – where property or parties involved are located in affected areas, other exchanges may not be eligible. Exchangers and their advisors should carefully review any IRS notices regarding extensions and make determinations regarding extensions accordingly.
The Legal 1031 Team is closely monitoring this situation and we will send updates as we obtain more information. For an in-depth discussion of 1031 exchanges and disaster relief, please see our articles at: https://legal1031.com/news/irc-1031-exchanges-and-disaster-relief/ and https://www.linkedin.com/pulse/1031-exchange-blog-irc-exchanges-disaster-relief-james-t-
Legal 1031 Exchange Services, LLC does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of any transaction. Taxpayers must consult their tax and/or legal advisors for this information. Unless otherwise expressly indicated, any perceived federal tax advice contained in this article/communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
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