You may remember two months ago we notified you of some very positive news for 1031 real estate investors, when the IRS issued new guidelines allowing an extension of the 45-day and 180-day deadline requirements currently defined in IRC section 1031. The action was in response to pressure from several industry groups asking the U.S. Treasury and IRS to recognize the challenges 1031 exchangers were having in meeting their timeline restrictions amid COVID-19 lockdowns and while so much of the economy was still shuttered.
As states and cities begin to open, many investors have benefited from these badly needed extensions, thus preserving their tax-deferral benefits, and successfully completing their exchanges. But for those still in need of identifying a replacement property or closing on an exchange, the July 15, 2020 extension deadline is creeping up quickly, so you will want to act now. At this point, the IRS has not offered any additional guidance or extensions.
As a reminder, the guidance identified in IRS Notice 2020-23 stipulated that any investor with a 45-Day Identification Period or 180-Day Exchange Period deadline between April 1 and July 15, 2020 would have an automatic extension to July 15, 2020. We provided the following examples in our earlier post but thought they would be helpful again in illustrating how the extensions work:
John Smith’s 1031 Exchange began on April 1st, 2020 and his 45-Day Identification Period deadline is May 16th. Under Notice 2020-23, John’s new deadline is now extended to July 15th, 2020 providing him additional time to find the right replacement property. John still must close on the replacement property by day 180 of his Exchange which is September 28th, because that date falls after his July 15th extension date.
Sarah Jackson’s 1031 Exchange began on December 15th, 2019. Her 45-Day Identification Period deadline was January 29th. Because Sarah’s ID replacement deadline occurred prior to April 1, 2020, no extension applies. But since her 180-day Exchange Period Deadline occurs on June 12th, she benefits from the Notice’s extension rules and now has until July 15, 2020 to complete her exchange.
If you are using a 1031 Exchange and are still having a difficult time identifying a replacement property, conducting a property inspection, or securing replacement debt, if suitable, the Delaware Statutory Trust (DST) may help you still meet the April 1, 2020 deadline. With a DST, property identification, due diligence, valuation, inspection, and purchase have already been completed. Debt has already been secured and a management team is in place. Importantly, we can have your investment into DST’s often closed in just a few days.
For more information, please feel free to download our helpful document, Understanding the New IRS Deadline Extensions for 1031 Exchanges.
Please feel free to contact our team if you need more information. We can help answer questions you have about your exchange and we can assist with your exchange needs.