For those real estate investors currently involved in a 1031 exchange one of the most pressing questions is “will there be an extension of the 45 day identification period and 180 day period in which to complete their exchange?” The answer is “not yet, but hopefully soon.”

There are certain steps which must happen in order for there to be an extension of the 1031 exchange deadlines. These steps are described by the IRS in Rev. Proc. 2018-58, but this ruling does not, by itself, provide for the actual extension.

Currently, FEMA updated their map, https://www.fema.gov/disaster/4480#, to show individual assistance for all of New York. This is a needed step.

Accordingly, the IRS should issue a notice of extension as the criteria for doing so has been met. The FEA (qualified intermediary trade group) and numerous real estate trade groups are pushing the Treasury Department to issue the required notice and sent a letter to Treasury Secretary Steven Mnuchin on March 23, 2020. We are waiting a response.

Historically, extensions are for 120 days – both for the 45 day ID period (if the taxpayer is still within the ID period) and the 180 day period in which to complete the exchange. To qualify the taxpayer must be an “affected party”, meaning they have some adversity to their exchange which is related to the area of the FEMA map which shows “individual assistance”.

If a taxpayer is still within the 45 day ID period they receive an additional 120 days to identify replacement property, plus an extra 120 days, in addition to the 180 days, to close (for a total of 300 days).

However, if the taxpayer is past their 45 day ID period they will only be permitted to reopen their ID if their property is “affected” by the presidentially declared disaster. For example, did the tornado or wildfire damage the property the taxpayer was going to buy? Covid-19 isn’t going to “damage” any properties. It is just going to cause problems and delays for deals – there is a difference. Under these rules, taxpayers past their 45 day ID period would NOT get additional time.

The IRS may do something different for this extension but historically the above describes how the 45 and 180 day deadlines would be affected by an extension.

Although there is a decent chance an extension will be issued the most conservative approach is for taxpayers to proceed as if no extension will be provided. The Treasury Department is no doubt dealing with the larger economic impact of Covid-19 and the hope is that they will turn their focus to this issue in a timely fashion.

If you have any questions about a 1031 exchange please contact Todd R. Pajonas, Esq., President at or Matthew K. Scheriff, CPA, Executive Vice President at .

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