Effects of COVID-19 on 1031 Exchange Deadlines
By: Katherine McKain
Following President Trump’s emergency declaration on March 13, 2020, with respect to the COVID-19 outbreak, the U.S. Treasury Department (the “Treasury Department”) and Internal Revenue Service (“IRS”) issued guidance on special payment relief to individuals and businesses. However, as of the date of this post, no extensions or other relief apply to 1031 exchanges.
The IRS regulations related to 1031 exchanges set strict deadlines for a taxpayer to successfully complete a 1031 exchange. From the date of closing on the relinquished property, the taxpayer has 45 days to identify replacement properties and must acquire the replacement property within 180 days.
Section 17 of IRS Revenue Procedure 2007-56, extends 1031 deadlines for some federally declared disasters. The extensions are not automatic and do not apply to all federal disasters. Any tax relief notice issued by the IRS must specifically provide relief under Section 17 of IRS Revenue Procedure 2007-56 in order to apply to 1031 exchanges.
Even if the IRS provides relief, not all taxpayers and/or exchanges qualify for an extension. An extension is only applicable to those exchange deadlines that fall on or after the date of the federally declared disaster and for property within a federally declared disaster area. Additionally, the exchange agreement must include language allowing deadline extensions if the replacement property (for a standard exchange) or the relinquished property (in a reverse exchange) is in a federally declared disaster area. The IRS may also limit eligibility for extensions for each federally declared disaster. Therefore, a taxpayer should consult with their tax advisor to determine if they qualify for an extension for each applicable federally declared disaster.
For updates on COVID-19 and new guidance provided by BrownWinick attorneys, please visit our COVID-19 Resource Page.