Lets look at 1031 Exchange Timelines and how the pandemic can impact them. In a 1031 Exchange there are timelines to follow. If a seller of an investment property is in agreement to exchange with a Qualified Intermediary when they close on the relinquished property, the clock starts ticking. The taxpayer has 45 days from closing to identify what they plan to purchase and 180 days to close on the identified replacement property/ies. The problem arises when there is an unexpected hurdle such as the Coronavirus (COVID-19), this puts most in unchartered territory and a place where some located in certain counties are unable to view properties due to Shelter-in-Place rules.
We as an industry are waiting to see what the IRS decides. The Federation of Exchange Accommodators (FEA, 1031.org), are fighting on our behalf and are working with the Treasury and IRS seeking disaster relief for taxpayers within a 1031 exchange:
On March 23, FEA joined members of the real estate coalition in sending a letter to Treasury Secretary Steven Mnuchin and other policy makers at the Treasury Department and Internal Revenue Service, requesting guidance to delay the deadlines applicable to like-kind exchanges that are currently underway due to the COVID-19 crisis. The letter specifically requests that deadlines to identify replacement property and/or complete like-kind exchanges should be extended to the later of 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance, similar to the relief described in section 17 of Rev. Proc. 2018-58 and authorized under Internal Revenue Code Section 7508A.
What does this mean for you as a seller that is amidst the 45-day identification period? As an industry we are all moving forward with the safe harbor rules. The decision to extend must come from the IRS; for now, a taxpayer should keep moving forward knowing their timeline has yet to be approved for extension. We will share any information on extensions as soon as it is released. More to follow…
The above is not meant to be tax advice, seek tax guidance from a CPA or professional tax advisor to verify how this may affect you.
Regional Sales Executive | Old Republic Exchange Company
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