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IRC Section 1031 Real Estate Exchanges: COVID-19 Impact

Real Estate IRC Sec. 1031 exchanges today are very common. With respect to completing a successful 1031 exchange and deferral, there are stringent timelines for forward exchanges. Here are a few relevant timed deadlines:

  • Within 45 days of the sale of relinquished real estate property, replacement property must be identified.
  • Within 180 days of the sale of relinquished property, replacement real estate property must be acquired.

In Rev. Proc. 2007-56, the IRS sets forth guidelines in which some of these deadlines can be extended. In the event that the investors are affected by a federally declared disaster, act of terror or military action, an extension of time is provided. In order to be granted an extension, the IRS either needs to issue a notice or other guidance to provide relief.

Please be aware that as of the date of this post (3/31/2020), the IRS has yet to issue a notice and it is unclear whether President Trump declaring disaster zones for states is sufficient.

If a notice is issued, the timeline for the exchange is extended by the later of 120 days or the date in the IRS tax relief notice, but not beyond the due date (including extensions) for filing the tax return for the year of transfer or one year.

In order for Rev. Proc. 2007-56 to apply, the following as well as other qualifications must be met:

  1. The relinquished property must have been transferred on or before the date of the federally declared disaster AND the exchanger must be an affected taxpayer as defined OR have difficulty meeting the exchange deadlines due to one of the disaster reasons indicated in the revenue procedure.
  2. The exchange agreement must also explicitly provide for an extension in the event of a federally declared disaster.

Please contact our offices for assistance with your real estate transactions and closings.

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