A successful completion of a 1031 exchange requires adherence to strict rules regarding the timing of each transaction. Specifically, the 45-day time frame requires exchangers to formally identify one or more replacement properties within 45 calendar days from the date of the sale of the relinquished property, and the 180-day time frame requires closing on one or more identified properties within 180 calendar days from the date of the sale of the relinquished property.
Over the past several months, an onslaught of weather disasters has created challenges for investors in affected locations. In response, the IRS has issued tax relief measures for certain federally declared disaster areas. Affected taxpayers engaging in a 1031 exchange may potentially be able to take advantage of two different deadline extensions. These are defined under Section 4 and Section 17 of Revenue Procedure 2018-58.
Section 4 provides tax relief to individuals who qualify as “affected taxpayers.” Generally, this includes individuals with a principal residence or business entity that has a principal place of business within the geographic areas defined within a specific IRS Notice.
Section 4 relief, also known as general relief, extends the date to meet tax-related deadlines that fall between the disaster date and the extension date. For 1031 exchange transactions, this includes the 45-day and 180-day deadlines. Following, you’ll find a list of each area that is currently impacted by IRS disaster relief notices and the new deadlines that apply.
IRS Notices AL-2023-01 and GA-2023-01 provide relief to victims of tornados, straight-line winds, and severe storms that occurred in Alabama and Georgia in January 2023.
Disaster date: January 12, 2023
Extension date: May 15, 2023
Impacted Counties:
IRS notice CA-2023-01 provides relief for victims of mudslides, flooding, and severe winter storms that occurred in January 2023.
Disaster date: January 8, 2023
Extension date: May 15, 2023
Impacted counties: Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba
IRS Notice FL-2022-20 grants relief to individuals impacted by Hurricane Nicole, which occurred in November 2022. In addition, IRS Notice FL-2022-19 provides relief for those impacted by Hurricane Ian, which occurred in September 2022.
Disaster date 1 (Hurricane Nicole): November 7, 2022
Extension date 1: March 15, 2023
Impacted counties: Alachua, Baker, Bradford, Brevard, Broward, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Holmes, Indian River, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Martin, Miami-Dade, Nassau, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, Suwannee, Taylor, Union, Volusia, Wakulla, and Washington Counties; the Miccosukee Tribe of Indians of Florida and the Seminole Tribe of Florida
Disaster date 2 (Hurricane Ian): September 23, 2022
Extension date 2: February 15, 2023
Impacted counties: All counties in the state of Florida.
IRS Notice IL-2022-08 provides tax relief for those impacted by severe storms and flooding that occurred in July 2022.
Disaster date: July 25, 2022
Extension date: February 15, 2023
Impacted counties: St. Clair County
The state of New York recently suffered two separate weather-related disasters which have led to tax relief notices. NY-2022-08 addresses the impact of a winter storm that occurred in November 2022, while NY-2022-09 applies to those impacted by a winter storm that occurred in December 2022.
Disaster date 1: November 18, 2022
Extension date 1: March 15, 2023
Impacted counties: Cattaraugus, Chautauqua, Erie, Genesee, Jefferson, Lewis, Niagara, Oneida, Oswego, St. Lawrence, and Wyoming
Disaster date 2: December 23, 2022
Extension date 2: April 18, 2023
Impacted counties: Erie and Genesee
IRS Notice NC-2022-10 provides relief for those impacted by Hurricane Ian across the state of North Carolina.
Disaster date: September 28, 2022
Extension date: February 15, 2023
Impacted counties: All counties in NC
IRS Notice SC-2022-06 provides relief for those impacted by Hurricane Ian, across the entire state of South Carolina.
Disaster date: September 25, 2022
Extension date: February 15, 2023
Impacted counties: All counties in SC
IRS Notice PR-2022-10 provides tax relief for victims of Hurricane Fiona, which occurred in September 2022.
Disaster date: September 17, 2022
Extension date: February 15, 2023
Impacted areas: All municipalities in Puerto Rico
Section 17 of Revenue Procedure 2018-58 provides an alternative to the general relief described above. This applies to “impacted 1031 exchangers” who initiated a 1031 exchange on or before the disaster date listed in the notice.
It allows you to add an additional 120 days to both the 45-day and 180-day deadlines. This stretches the deadlines out to 165 days and 300 days, respectively, or the extension deadline, whichever is later.
For example, if the 45-day deadline falls on February 15th, you may extend this by an additional 120 days, making the new deadline June 15th. Since this is after the extension date, it would become your new deadline.
Section 17 also expands relief to qualifying taxpayers who are domiciled outside of a designated disaster area. For example, this may apply if the title company is unable to complete the closing or the lender won’t fund your loan due to a federally declared disaster.
Taxpayers who are outside of the designated disaster area may reach out to the IRS at 866-562-5227 to learn more about their potential ability to qualify for tax relief.
The deadline extensions outlined in each IRS notice are considered “automatic,” since you do not have to apply to the IRS for an extension. However, they are also considered elective, since you may choose whether to extend your deadline or adhere to the original 45-day and 180-day rules.
If you qualify for relief under both Section 4 and Section 17, you may choose which extension to apply or choose not to take an extension at all. The decision often comes down to how long it takes to identify and close on a suitable replacement property.
Also, keep in mind that IRS rules do not allow you to extend your deadlines for more than one year beyond the due date of your tax return for the year in which the exchange began. In addition, if your 45-day identification deadline passed before the disaster date, you may only modify your identification statement if the identified property was damaged by the disaster.
Since disaster relief can be complex when applied to a 1031 exchange, please always consult with your tax and legal advisors before making your decision. If you would like to learn more about how federal disaster relief may impact your 1031 exchange, please contact us to schedule a consultation.
Because investor situations and objectives vary this information is not intended to indicate suitability for any particular investor.