Question
How can an investor determine if a Presidentially declared disaster affects the deadlines for her 1031 tax-deferred exchange, such as the 45-day identification period or the 180-day exchange period, and what criteria or conditions must be met for these deadlines to be extended?
ARTE's Answer
When an investor is involved in a 1031 tax-deferred exchange, timing is crucial. The IRS mandates specific deadlines: a 45-day period to identify potential replacement properties and a 180-day period to complete the exchange. However, these deadlines can be extended if a Presidentially declared disaster impacts the exchange. Here’s how an investor can determine if such a disaster affects her 1031 exchange deadlines:
- Check for a Presidentially Declared Disaster: The first step is to verify if there has been a Presidentially declared disaster in the area where the relinquished or replacement property is located. The IRS typically issues News Releases or other guidance that specify the affected areas and the relief available.
- Determine if You Qualify for Relief: An investor may qualify for an extension of the 45-day identification period and/or the 180-day exchange period if:
- The relinquished or replacement property is located in the disaster area.
- The principal place of business of any party involved in the transaction (such as a qualified intermediary like us at Deferred.com, a settlement attorney, or a lender) is located in the disaster area.
- Any party to the transaction is killed, injured, or missing due to the disaster.
- Documents related to the exchange are destroyed, damaged, or lost because of the disaster.
- A lender decides not to fund a real estate closing due to the disaster.
- Understand the Extension Period: If the investor qualifies for relief, the deadlines are generally extended by 120 days or to the last day of the general disaster extension period authorized by the IRS, whichever is later. However, the extension cannot go beyond the due date of the taxpayer’s tax return for the year of the transfer or one year from the original deadline.
- Example Scenario: Let’s say an investor, Jane, is using Deferred.com as her qualified intermediary for a 1031 exchange. She sold her relinquished property on January 1 and identified potential replacement properties by February 15. Her 180-day deadline to complete the exchange is June 30. However, a Presidentially declared disaster occurs on March 1, affecting the area where her replacement property is located.
Because the replacement property is in the disaster area, Jane qualifies for an extension. The IRS News Release states that the disaster relief extends deadlines by 120 days. Therefore, Jane’s new deadline to complete the exchange would be October 28, provided this date does not exceed the due date of her tax return or one year from the original deadline. - Stay Informed: It’s essential for investors to stay informed about any IRS announcements regarding disaster relief. Consulting with a qualified intermediary like us at Deferred.com can provide guidance and ensure compliance with the extended deadlines.
By understanding these criteria and staying updated on IRS announcements, an investor can effectively manage her 1031 exchange deadlines in the event of a declared disaster.
If you have any further questions or need assistance with your exchange, feel free to reach out to us at Deferred.com.
Have more questions? Call us at 866-442-1031 or send an email to support@deferred.com to talk with an exchange officer at Deferred.
Deferred's AI Real Estate Tax Expert (ARTE) is a free research tool. Trained on 8,000+ pages of US tax law, regulations and rulings, ARTE outperforms human test takers on the CPA exam. This is page has ARTE's response to a common 1031 Exchange question and should not be considered personalized tax advice.
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