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IRS Announces Extensions for 1031 Exchange Deadlines - 2020


COVID-19 has had a major impact on our economy. The virus has created unexpected cash flow challenges for many businesses large and small. In an effort to minimize devastating effects, the IRS has announced the current 1031 Exchange Deadlines will be extended. 

1031 like-kind property exchanges are possible for properties held for productive use in a trade, business, or investment. The nature of like-kind refers to the investment rather than the form itself. Any investment property can be exchanged for another type of investment property.

On March 13, 2020, President Donald Trump issued an emergency declaration in response to the ongoing COVID-19 pandemic under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. In his letter from the white house, he outlined “I am also instructing Secretary Mnuchin to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7508A(a).”

On March 23, 2020, a letter was sent to Secretary Mnuchin from a real estate coalition requesting “that the Treasury Department and IRS take administrative action to help ensure liquidity in real estate markets by delaying deadlines applicable to like-kind exchanges that are currently underway (e.g., a taxpayer who has entered into an exchange agreement with a qualified intermediary or an exchange accommodation titleholding agreement with an exchange accommodation titleholder)” as reported by Pillsbury.

On April 9, 2020, the IRS released Notice 2020-23. The new Notice provides Taxpayers who are currently engaged in a 1031 exchange some relief from the 45-Day Identification and 180-Day Exchange Period deadlines. This notice allows taxpayers that have a like-kind exchange currently in process to qualify if:

  1. Your 45-Day identification period falls between 4/1/2020 and 7/15/2020 you have until 7/15/2020 to identify prospective replacement properties.
  2. Your 180-Day deadline falls between 4/1/2020 and 7/15/2020 you have until 7/15/2020 to complete your exchange transaction.

    On April 29, 2020, the American Bar Association Section of Taxation submitted a letter to the IRS requesting (1) clarification of the Section 1031 time extensions provided by Notice 2020-23, and (2) a time extension start date of January 20, 2020 according to First American. The recommendation notes that “many taxpayers were unable to meet the section 1031 deadlines falling prior to April 1, 2020 due to the COVID-19 emergency and the various governmental restrictions and business closures. Thus, taxpayers in the middle of a section 1031 exchange have been unable to view real properties, obtain appraisals for financing, close purchases, etc. Accordingly, we recommend that the Service clarify that the section 17 postponements commence on the FEMA incident date of January 20, 2020 until the later of (i) July 15, 2020, or (ii) the latest day of the Incident Period specified for the federally declared disaster plus 60 days, in accordance with section 7508A(d)(1)(B).” See the full letter in the related links down below.

    We will continue to update this blog as more information becomes available.

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    We believe the information above to be correct, however, we are not attorneys, accountants, or real estate tax specialists. Please consult with your legal, accounting, or real estate tax professionals for further information regarding this subject.

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