Many real estate investors seeking tax deferral in a 1031 exchange, as well as owners contemplating a sale of an investment property in the near future and intending to perform a 1031 exchange, have been anxiously awaiting guidance from the IRS on the impact of the COVID-19 pandemic on the time deadlines in an exchange.
On April 9, 2020 the IRS issued Notice 2020-23, which extended many deadlines for real estate investors affected by the COVID-19 outbreak, including Section 1031 exchange time deadlines.
This notice provides that any person performing a time-sensitive action listed in either § 301.7508A-1(c)(1)(iv) of the Procedure and Administrative Regulations or Revenue Procedure 2018-58, 2018-50 IRB 990 (Dec. 10, 2018), which is due to be performed on or after April 1 and before July 15, 2020, is an “affected taxpayer.” This includes the 45-day identification and 180-day exchange period deadlines in both deferred and safe-harbor reverse 1031 exchanges.
Therefore, pursuant to Notice 2020-23, if the end of an investor’s 45-day identification period or 180-day exchange period in a deferred exchange — or the parallel periods in reverse exchanges under Revenue Procedure 2000-37 — falls between April 1 and July 15, the applicable period is automatically extended to July 15. Real estate investors that choose to opt-out of these extensions should notify their qualified intermediary (QI) in writing as soon as possible.
Not included in the extension
In the absence of further IRS guidance, only deadlines currently scheduled to occur between the dates of April 1 and July 15, 2020 are extended. Notice 2020-23 does not address deadlines that fall before or after this specific time period or, most importantly, identification or exchange completion periods that ended before April 1 or pending exchange periods that end after July 15. In addition, this notice is different from many previous IRS Disaster Relief Notices and does not provide clear answers to other deadline-related issues.
This notice does not reference Section 17 of Revenue Procedure 2018-58, which provides an extension of 120 days or until the date specified in the notice, whichever is later. It is uncertain and not clear in Notice 2020-23 if the 120-day deadline extension provided in previous IRS Disaster Relief Notices applies.
More guidance to come?
Some real estate investors were seeking IRS extensions of dates falling after the date of the FEMA and Stafford Act declaration on March 13, 2020. Other investors were hoping for a deadline extension to apply from the date of the FEMA disaster declaration on Jan. 20, 2020. At this point in time, taxpayers should make decisions based only upon known IRS guidance.
It is unknown whether additional guidance will be released by the IRS addressing these and other uncertain issues. Every investor should consult with its own legal and/or tax advisors regarding the tax consequences of any specific 1031 exchange transaction.
— By Scott Saunders, Senior Vice President of Asset Preservation, Inc. Asset Preservation is a leader in the 1031 exchange industry.