Fortitude's Insights

Disaster Relief IRS Issued Tax Relief & 1031 Extensions

Posted by Daniel Raupp on Sep 1, 2018 12:47:00 PM

Deadlines for completing a 1031 Exchange are straightforward. Once you close on the sale of your old property, you have 45 days to locate the new property that you want to purchase and 180 days to complete the purchases of the new property.

However, when a catastrophic event that affects large numbers of people, such as hurricanes, tornados, wildfires, floods and terrorist actions occur, the government may issue tax relief extensions, which also may extend your 1031 deadlines.

Severe Weather-1If the IRS issues an official notice, then Section 17 of Revenue Procedure 2007-56 provides postponement provisions specific to 1031 Exchange deadlines that apply in the case of federally declared disasters. Section 17 extends the 45- and 180-day periods in forward and reverse exchanges that fall on or after the date of a federally declared disaster by the later of 120 days or the date specified in the relevant IRS News Release (Tax Relief Notice), but not beyond the due date for filing the tax return for the year of the transfer.

 

After a catastrophic event, the IRS may issue a Tax Relief Notice identifying counties, state-by-state, that have been declared disaster areas.

The IRS issued Tax Relief notices for the recent storms and flooding in Alabama, Arkansas and Mississippi. A Tax Relief Notice must specifically state that it provides relief under Section 17 of Rev. Proc. 2007-56 in order for the notice to apply to like-kind exchanges. FEMA disaster notices, which are typically published well before IRS Tax Relief Notices, do not have any effect upon 1031 Exchange deadlines.

To qualify for an extension of the section 1031 deadlines, 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” OR must have difficulty meeting the exchange deadlines due to one of the following disaster-related reasons:

  • The Relinquished or Replacement property is in the covered disaster area
  • The principal place of business of any party (i.e., Qualified Intermediary, Exchange Accommodation Titleholder, Settlement Agent, Lender, Title Insurer) to the transaction is in the disaster area 
  • Any party to the transaction dies, is injured or is missing
  • Documents relating to the exchange or transaction are destroyed, damaged or lost
  • The lender will not fund because of the disaster
  • Title, hazard, flood or other such insurance is no longer available for that property

The rules related to qualifying for a disaster extension can be complicated and a taxpayer should always seek advice from a competent tax advisor or attorney regarding entitlement to the extension.

Additionally, it is important to note that in order for the taxpayer involved in an exchange to take advantage of these disaster relief options, the exchange agreement must include language allowing for extensions in the event of federally declared disasters.

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This is for educational purposes only, does not constitute an offer to buy/sell securitized real estate investments, and is not meant to be interpreted as tax or legal advice. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. Please speak with your legal and tax advisors for guidance regarding your particular situation. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC, an SEC registered investment adviser. Insurance offered through Concorde Insurance Agency, Inc. Fortitude Investment Group is independent of CIS, CAM and CIA.

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Written by Daniel Raupp

Under Daniel’s guidance since 2000, Fortitude Investment Group has guided clients into over $1 billion worth of securitized real estate investment offerings directly and indirectly, in both the DSTs for 1031 Exchanges and REITs. Daniel directs a range of strategic initiatives in the firm to successfully leverage core competencies in tax efficient investing, alternative investments, and operational excellence to create customer value.

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Topics: 1031 Exchange, Tax Relief

DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). Fortitude Investment Group is independent of CIS, CAM and CIA.

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