Extension of Time for Certain §1031 Exchange Periods Extension of Time for Certain §1031 Exchange Periods

Most people are at least vaguely aware of Section 1031 of the Internal Revenue Code and its provisions that don’t just permit, but require, that no gain or loss be recognized on sales of real property that fall within its scope.
Real property subject to §1031 is any property held for investment (as opposed to personal use) or for productive use in a trade or business (as opposed to real property which is considered inventory, for example). For these properties (“Qualifying Property”), §1031 is not optional, but is mandatory.

Although the provisions of §1031 are mandatory for the properties described, there are requirements that must be met to obtain the tax deferred treatment offered. When Qualifying Property is sold (the “Relinquished Property”), a taxpayer must reinvest in Qualifying Property (the “Replacement Property”). Section 1031 requires that Replacement Property be designated not later than 45 days following the sale of the Relinquished Property and received by the taxpayer not later than 180 days following the sale of the Relinquished Property.

For closings of Relinquished Property taking place neat the end of the tax year, the full 180-day period may not be available unless the taxpayer extends the due date of the tax return for the year during which the sale takes place. If the return is filed before the 180-day period runs, the last day to close on the Replacement Property is the date the return is filed, even if the 180-day period would end later.

The 45-day and 180-day periods are generally not subject to extension, even for weekends and holidays.

The IRS recently issued Notice 2020-23 which extends a number of due dates and time sensitive actions. Time sensitive actions include time periods under §1031, particularly the 45-day and 180-day periods. In short, if the 45-day or the 180- day periods would end on or after April 1, 2020 and before July 15, 2020, the applicable period ends on July 15, 2020. For example, if a 180-day period would have ended on June 3, 2020, it will now end on July 15, 2020. If a 45-day period would have ended on or after April 1, 2020, but before July 15, 2020, it will now end on July 15, 2020. No special filing is required to obtain this relief.

If you have questions about the application of these time periods or §1031 in general, please give us a call.