The nationwide 1031 Exchange extension ended on July 15, 2020.
The IRS did issue a 45-Day and 180-Day “disaster area” extensions for:
– Affected counties in Utah beginning on March 18 (details below)
– Linn County in Iowa beginning on August 10
– Affected counties in California beginning on August 14 (details below)
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We’ve received a ton of client questions during the COVID-19 crisis.
- How is it affecting the real estate market?
- What about my 1031 exchange?
- How long have 1031 deadlines been extended?
- Do I need to apply for an extension?
The IRS was not particularly clear or helpful.
Here’s what is concretely known:
- The IRS extended 1031 exchange deadlines for some taxpayers
(We cover this in more detail below)
- Those extensions ended on July 15, 2020
(We also cover this in more detail below)
Update: August 26, 2020
The IRS issued an extension for affected counties in California following ongoing wildfires. Affected counties include
– San Mateo
– Santa Cruz
To find out which 1031 taxpayers qualify for an extension, please read the August 7, 2020 update below.
Update: August 7, 2020
The IRS issued an extension for affected counties in Utah following an earthquake in March. Affected counties include
– Salt Lake
Pursuant to Rev. Proc. 2018-58 section 17, the following must be true to receive a 1031 deadline extension:
- Taxpayer is located in the “Covered Disaster Area” (or otherwise meets the criteria for “affected taxpayer”), regardless of where the relinquished or replacement property(ies) are located, or has sufficient difficulty meeting the exchange deadlines
- Relinquished property was transferred (or any property acquired by EAT in a reverse exchange) on or before the Disaster Dates beginning March 18.
If you qualify under these preconditions, then
- Any 45-day or 180-day deadline related to your 1031 exchange falling on or after the Disaster Dates is extended to one of two dates, whichever is further out:
(A) 120 days from the original deadline, or
(B) the extension date listed by the IRS (July 31, 2020 in this case).
Update: July 16, 2020
The 1031 extensions ended yesterday.
We do not know if further tax relief will come for real estate investors.
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Update: July 6, 2020
There are 10 calendar days remaining on the original 1031 disaster relief extensions.
For those affected, this means
- If your 45 days were extended to July 15
You have very little time remaining to identify potential replacement properties AND your 180-day deadline was NOT extended, so you may very be nearing the end of your entire 1031 period.
(You may also consider identifying a Delaware Statutory Trust or another alternative asset if you can’t find an attractive traditional property)
- If your 180 days were extended to July 15
You have very little time remaining. Period. If you’re struggling to close on a replacement property, consider increasing your offer in a way that still preserves the benefit of your potential tax deferral.
(Alternatively, you could explore the benefits of a Qualified Opportunity Zone investment)
Update: April 30, 2020
Calls for clarification from the IRS regarding the application of the 1031 exchange extension deadlines continue to roll out.
(The National Multifamily Housing Council is one of many groups pushing for answers.)
Additional relief is also a common ask.
The prospects for additional relief remain uncertain.
Update: April 20, 2020
Update from the Federation of Exchange Accommodators:
A coalition of real estate groups, including the FEA, sent a letter to Treasury Secretary Steven Mnuchin and the IRS.
To sum up the letter in brief: Please tell us what is going on!
This letter was necessary.
The IRS’ previous deadline extension, while much needed and appreciated, was incredibly sparse.
(We detailed some of the lingering questions below)
Moreover, the letter also requests additional relief to real estate investors.
1031x is watching this very closely!
More to come as we unpack and listen.
Update: April 13, 2020
If your 45-day deadline gets extended to July 15…
…this does NOT mean that your 180-day deadline is pushed 135 days from July 15. Your original 180 days expires on the same date as before the extension.
You simply get more time to ID a property.
This is the current understanding circulating the legal community.
Update: April 10, 2020
Attorneys and CPAs continue parsing through the new IRS extension.
The Federation of Exchange Accommodators put it best in an email to its members:
They also pointed out how little we really know yet.
Punchline: It’s a big win if you have a 1031 deadline end between April 1 and July 15. Beyond that, we aren’t sure.
Update: April 9, 2020
Real estate investors received a huge boost.
Late Thursday evening, the IRS published Notice 2020-23
- Extends 45-day and 180-day deadlines
- Applies to any exchangers who had a relevant deadline end in the period between April 1 and July 15.
- does not explain what happens to exchangers who failed an exchange before or after April 1.
- does not give a clear answer to whether the extensions might extend further.
There’s still a lot to learn.
What does seem clear is that many exchangers will have until at least July 15, 2020 to complete whichever of their deadlines would have fallen between April 1 and July 15.
We will be providing more updates on this shortly.
Update: April 7, 2020
Unfortunately for those on the West Coast, the California Franchise Tax Board there is no extension for those needing to file real estate withholding after ending a 1031 exchange.
Withholding remains due the 20th of each month.
Per the FEA, the FTB is willing to work with any investors who took seriously a previous FTB news release indicating that real estate withholding was included in the exemption.
If you’ve been affected by this, please contact our office and we will route you to the appropriate authority.
Update: April 2, 2020
Reported jobless claims for the week ending March 28 jumped to approximately 6.6 million.
That’s about 20 times the historic weekly average.
(Graphic courtesy of CNN)
Bottom line: This is unprecedented. Saavy investors should speak with their advisors to see if they can afford aggressiveness.
Update: March 30, 2020
Uncertainty still exists for real estate deferral provisions.
The REI (“Real Estate Investing”) community hopes that lawmakers step up and extend deadlines for Section 1031 like-kind exchanges and for qualified opportunity funds.
We saw the April 15 filing deadline pushed until July 15 with Notice 2020-18.
- In a 1031 exchange, the exchanging taxpayer must identify potential replacement properties within 45 calendar days from the sale of their relinquished property.
- Similarly, the taxpayer must complete their purchase(s) within 180 calendar days of the sale of relinquished property.
Inability to meet these deadlines results in a “failed” exchange.
As in: taxes due in full.
Same story for deferral in a QOF. Investors have 180 calendar days to reinvest their capital gains into a QOF or they face full tax recognition.
Many states will move to relax rules on remote notarization of real estate documents.
We’ve already seen this speed up dealflow.
Colorado State Update: March 24, 2020
Over the past week, we have seen state-wide initiatives and orders mandating the reduction of in-person work requirements by at least 50% for non-essential businesses, as well as shelter-in-place orders limiting the abilities of parties in real estate transactions, like notaries, to appear in person.
In response, the Colorado Bar Association has approved a COVID-19 Addendum to real estate contracts.
- Brokers, attorneys, and parties to the real estate contract can pause pending transactions
- Used when parties want to close but are unable due to the effects of COVID-19.
Mayor Michael Hancock has since updated the original stay-at-home directive for the City & County of Denver
(Note: not all cities have qualified real estate to be essential)
Real estate services are exempt from the stay-at-home directive so long as individuals are complying with physical distance requirements.
Update: March 23, 2020
Despite the low mortgage interest rates, the effects of COVID-19 include fewer homes on the market, unanticipated transaction delays, and longer closing times.
While it is still unclear if the initiatives set by President Trump and the Federal Reserve will help to stimulate the economy, we may be seeing a shift of homebuyers wanting to take advantage of low mortgage rates to personal safety.
Closings can also take longer as lenders are overwhelmed with the number of homeowners rushing to refinance mortgages with low-interest rates.
We expect slower approvals for home buyers.
Other delaying factors include in person-services from outside parties like inspectors and appraisers.
While these may be temporary COVID-19 effects with unclear long-term consequences, we know that there is still interest from buyers wanting to purchase a home and that the shortage of homes will help to keep prices from plummeting.
Colorado State Update: March 21, 2020
On Friday, March 21, 2020, Governor Jared Polis announced that he is directing the Department of Regulatory Agencies to work with state-chartered financial institutions to address commercial and residential foreclosures.
This is in response to the U.S. Department of Housing and Urban Development suspending evictions and foreclosures through the end of April.
Frannie Mae, Freddie Mac, and HUD Update: March 18, 2020
The Federal Housing Finance Agency has declared that it is ordering Frannie Mae and Freddie Mac to suspend foreclosures and evictions for at least 60 days.
This follows the announcement of President Trump that the Department of Housing and Urban Development will hold housing evictions and foreclosures until the end of April.
Therefore, this effort has both economic and health consequences in hopes to keep people in shelter-in-place, as well as avoid the spike in foreclosures that was seen in the 2008 financial crisis.
Will the outbreak affect 45- or 180-Day Deadlines?
In a 1031 exchange, you have 45 days to identify a replacement property(ies) and 180 days to close on that property(ies).
These deadlines are fixed…during normal circumstances.
Overall, in order for an extension to be made on the fixed timelines, there needs to be a federally declared disaster.
We have not seen an IRS extension yet.
Taxpayers received an extension on April 9.
- A formal petition for an extension was sent to the IRS by the Federation of Exchange Accommodators and another 20+ real estate organizations.
- You can read more on the steps the IRS has established to help taxpayers, businesses, and others impacted by the COVID-19 outbreak here (Coronavirus Tax Relief).
Some Closings Have Been Delayed. Can This Affect My Exchange?
With the spread of the coronavirus continuing, many states have issued emergent factors following CDC guidelines that include the closings of events and schools, limiting gatherings over 10 people, and encouraging many people to work from home.
While avoiding these in-person gatherings is an effective measure to flatten the curve and reduce risk, they have the potential to postpone closings.
If this does occur and your closing has been delayed, the good news is that exchanges are flexible. While the deadlines are strict, the IRS will not penalize you for starting an exchange and not finishing.
If you have started an exchange and get the news that your closing has been delayed, your money is not going anywhere and will sit securely in an FDIC insured bank.