IRS Extends Section 1031 Like-Kind Exchange Deadlines

Under section 1031 of the Internal Revenue Code, taxpayers are able to engage in a “Like-Kind Exchange” and exchange investment, business, or trade real estate and potentially defer all capital gains taxes. This is a very powerful tax deferral technique which provides tremendous savings for the real estate community, but generally comes with very strict requirements and time deadlines.

On April 9, 2020, the IRS published Notice 2020-23 which provides that “time-sensitive actions” that were otherwise due to be consummated or achieved on or after April 1, 2020, but also before July 15, 2020 (the last day of the disaster period per the IRS Notice) have been given a critical time extension.

Under a section 1031 transaction, the taxpayer generally has 45 days to identify the property and 180 days to consummate the exchange. Such an exchange is considered to be a time-sensitive action covered by IRS Revenue Procedure 2018-58. This is a very helpful and critical extension for taxpayers for a type of transaction where there are precise and rarely changed deadlines.

Below are examples of how the extensions can help taxpayers:

1. The exchange began on April 10, 2020. The 45 day identification period would normally end May 25, 2020. Under this notice the identification period would be extended to July 15, 2020. The taxpayer, however, would still have the same 180 day period until October 7, 2020 to consummate the transaction as the deadline is after July 15, 2020.
2. The exchange began on December 15, 2019. The 45 day identification period would normally end January 29, 2020. Since January 29, 2020 is before April 1, 2020, the 45 day identification period has not been extended. The 180 day time period to consummate the transaction would normally end June 12, 2020, which is before July 15, 2020. In that case, the time period to consummate the transaction would be extended until July 15, 2020.

For further information on how the Barton Real Estate Team is using the latest best practices and tax guidance for real estate transactions, please contact Steven Ebert.

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