The IRS has given 1031 investors some breathing room, extending deadlines for like-kind exchange deals during the corona virus outbreak.
In a guidance notice issued April 9, 2020, the IRS said it would provide “additional time to perform certain time-sensitive actions” that includes granting deadline relief for both 1031 like-kind exchanges and opportunity zone investments that are already underway.
If an investor has taken the first step of a like-kind exchange by selling the old property, and either the 45-day or the 180-day deadline falls between April 1 and July 15, the deadline has been extended to July 15.
If an investor who sold a capital asset planned to roll over the gain into an Opportunity Fund and the 180-day deadline to do so falls between April 1 and July 15, 2020, he or she can make the investment as late as July 15.
National Association of Realtors president Vince Malta welcomed the various federal tax deadlines, offering critical relief to NAR’s members and their clients.
“During recent weeks, NAR strongly advocated for tax payment deadline extensions – including for 1031-like-kind exchanges and Opportunity Zone investments – as this pandemic left small businesses and independent contractors particularly vulnerable,” said Malta, broker at Malta & Co., Inc., in San Francisco, CA. “On behalf of 1.4 million Realtors across the United States, I want to commend the IRS for moving quickly to protect countless American workers and consumers.
Adelaide Polsinelli, an investment sales broker with Compass said, “It’s a great first step. Many 1031 transactions rely on a series of other sales which would result in a domino effect causing disruption down the line.
“Extending the deadline was inevitable. However, given that the world is on hold, July 15 may not be enough time to make prudent investment decisions. Valuations are in constant change and inventory may be entwined in litigation. Hopefully, there will be further extensions and accommodations made to salvage deals in these scenarios.”
The 1031 allows an investor to defer paying capital gains taxes on an investment property when it is sold as long another “like-kind property” is purchased with the profit gained by the sale of the first property. Normally, the deal must be signed with 45 days and closed within 180 to apply.
Real estate groups calling on the Treasury to extend the deadlines last week, warning, “The COVID-19 crisis is threatening the ability of real estate investors to complete like-kind exchanges. All of these necessary steps are currently unfeasible due to travel restrictions, quarantine, properties being locked down, and office closures of title / escrow companies and governmental recording offices.”
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