IRS Update for 1031 Exchange Transactions

COVID-19
April 14, 2020
 

In our March 27 First Alert, we reported that no extensions had yet been announced to the deadlines for identifying the replacement property (within 45 days of closing) and completion of acquisition of the replacement property (within 180 days of closing or before the taxpayer’s next return is due) under Section 1031 of the Internal Revenue Code (IRC). 

Importantly, we provide this update so that you are aware of the extended deadline now applicable for certain 1031 exchange transactions. On April 9, 2020, the Internal Revenue Service issued Notice 2020-23, which extended deadlines to July 15, 2020 for taxpayers performing certain time-sensitive actions, including those that are currently engaged in like-kind exchanges of real property under Section 1031 of the IRC. Specifically, for taxpayers that have like-kind exchanges currently in process:

  • If the 45-day period for identifying replacement property expires on or after April 1, 2020 and before July 15, 2020, the taxpayer now has until July 15, 2020 to complete the identification.
  • If the 180-day period for completing the acquisition expires on or after April 1, 2020 and before July 15, 2020, the taxpayer has until July 15, 2020 to complete the exchange (assuming that the taxpayer’s next return is not due prior to July 15, 2020).

It should be noted that Notice 2020-23 did not provide any relief for deadlines that occurred prior to April 1, 2020. Thus, no extension has been provided if the 45-day or 180-day period expired prior to April 1, 2020. A number of national commercial real industry organizations have petitioned the U.S. Treasury for more clarity in IRS guidance and more uniformity in the allowed extension, such as a 120-day extension of both the identification and acquisition deadlines. An immediate response is not anticipated, but we will watch for further guidance as the July 15 deadline approaches. 


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