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Disaster Extensions and 1031 Exchanges

David Gorenberg, Esq., CES®
03/12/25
The deadlines imposed by IRC Section 1031 and the corresponding Regulations are static, with no ability for Exchangers to apply for extensions to their 45-day identification and 180-day exchange deadlines, as with their tax returns. However, the Stafford Act, described below, provides the authority for the IRS to grant automatic extensions for certain tax-related time sensitive acts. Nevertheless, there are potential areas of confusion related to extensions of 1031 Exchange deadlines.
Disaster Extensions and 1031 Exchanges

Large scale disasters caused by wildfires, tornadoes, tropical storms, flooding, and other natural events impacted Exchanger s in more than two dozen states in 2024.1 For those impacted, various forms of assistance were available from a variety of government and non-government organizations including Federal Emergency Management Agency, Small Business Administration, United States Department of Agriculture, and others. The Internal Revenue Service provided relief by allowing those defined as “Affected Taxpayers” to deduct casualty losses and extend certain time sensitive deadlines. But how do declared disasters impact IRC Section 1031 Tax Deferred Exchange s specifically? 

Section 1031 Background  

Under IRC Section 1031(a)(1), “no gain or loss is recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchange solely for property of like kind that is to be held for productive use in a trade or business or for investment.”  The Code section goes on to provide the Replacement Property is deemed to be not like-kind property if it is not identified on or before the 45th day after the transfer of the Relinquished Property , or if the property isn’t acquired by the earlier of (i) the 180th day after the transfer of the Relinquished Property , or (ii) the due date for the Taxpayer’s return for the tax year in which the transfer of the Relinquished Property occurs, including extensions.2 

For example, in a forward exchange, if the Exchanger transferred the Relinquished Property on November 1, 2024, the 45-day identification deadline would be December 16, 2024, and the 180-day exchange deadline would be April 30, 2025. However, the Exchanger ’s tax return deadline is April 15, 2025, which effectively shortens their exchange period unless they file Form 4868 to extend the deadline. Note, these deadlines and Form 4868 apply to individuals and married couples. Other deadlines and forms are to be used for other Exchanger s including Farmers and Ranchers, Corporations, and Partnerships.  

In a parking exchange, or “reverse” exchange/and or property improvement exchanges, the same calculations would apply. If, through a properly structured parking exchange, the exchange company, technically referred to as the Exchange Accommodation Titleholder , acquired the Exchanger’s Replacement Property on November 1, 2024, the Exchanger would have until December 16, 2024 to identify which property (or properties) in their existing portfolio would be the target for disposition, and until April 15, 2025 to complete that disposition (unless they file Form 4868 for an extension on their tax return). 

IRS Disaster Extensions 

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (“Stafford Act”) of 19883 amended the Disaster Relief Act of 1974. Section 401(a) of the Stafford Act provides that the Governor of an affected state must request that the President declare that a ‘major disaster’ exists. Major Disaster is defined as: 

“any natural catastrophe (including any hurricane, tornado, storm, high water, wind-driven [sic] water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought), or, regardless of cause, any fire, flood, or explosion, in any part of the United States, which in the determination of the President causes damage of sufficient severity and magnitude to warrant major disaster assistance under this Act to supplement the efforts and available resources of States, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby.”4 

Further, the Secretary of the Treasury may extend certain time sensitive acts for up to one year for Exchanger s affected by a federally declared natural disaster.5 Under IRC §7508A(d)(2), “Qualified Taxpayer s” are 

(A) Any individual whose principal residence (for purposes of section 1033(h)(4)) is located in a disaster area, 

(B) Any taxpayer if the taxpayer’s principal place of business (other than the business of performing services as an employee) is located in a disaster area, 

(C) Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a disaster area, 

(D) Any taxpayer whose records necessary to meet a deadline for an act described in section 7508(a)(1) are maintained in a disaster area, 

(E) Any individual visiting a disaster are who was killed or injured as a result of the disaster, and 

(F) Solely with respect to a joint return, any spouse of an individual described in any preceding subparagraph of this paragraph.6 

 

Exchanger s may determine if an event was designated by the President as a federally declared disaster area by searching on FEMA's Disaster & Declarations page. Many, but not all, of these disasters will also be posted to the IRS Newsroom. FEMA can provide assistance in one of three forms – public assistance, individual assistance, or a combination of public and individual assistance. Public assistance is when FEMA provides grants to state and local governments for items like debris removal, repairing roads and bridges, public buildings, and public utilities. Compare this to individual assistance, which is when FEMA provides grants to individuals for items like temporary housing, housing repair and replacement, as well as funeral expenses, just to name a few. 

When the President declares a federal disaster, FEMA will designate what counties, or parishes, are entitled to relief and what types of relief. This information is shared with the public and a map is generated to facilitate the sharing of this information. As an example, below is the map that was published in the wake of severe storms, straight-line winds, flooding and tornadoes affecting Kentucky in 2022. 

 

Kentucky Disaster Declaration

 

After the President declared that a major disaster existed in Kentucky, FEMA determined the geographical areas covered by the Declaration. Note that the map is color coded, and that there are five potential designations, by county. The counties indicated in white were not entitled to any FEMA relief. The counties highlighted in gold were entitled to public assistance only, and the counties in pink were entitled to receive both individual and public assistance. Only counties entitled to individual assistance, or public and individual assistance will receive disaster extensions. 

Revenue Procedure 2018-58 

Revenue Procedure 2018-58 updates Revenue Procedure 2007-56 with the purpose of providing an updated list of time sensitive acts that may be postponed under Sections 7508 and 7508A of the IRC.   

Further, Rev. Proc. 2007-56 and 2018-58 extend the definition of Affected Taxpayer to include individuals serving in the Armed Forces of the United States in a combat zone, or serving in support of such Armed Forces, individuals serving with respect to contingency operations, Affected Taxpayer s by reason of federally declared disasters within the meaning of § 301.7508A-1(d)(1), or Taxpayer s whom the IRS determines are affected by a terroristic7 or military action.8 

The Revenue Procedures also include special rules for Section 1031 Like-Kind Exchanges.9 The last day of the 45-day identification period, the last day of the 180-day exchange period, and the last day of any deadlines set forth under Rev. Proc. 2000-37 for parking exchanges, specifically those “that fall on or after the date of a federally declared disaster, are postponed by 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance announcing tax relief for victims of the specific federally declared disaster, whichever is later.”10 

Affected Taxpayer s who meet the terms of the Disaster Relief Notice must choose the relief provided in Section 6 or Section 17 of Rev. Proc. 2018-58. Section 6 applies only to Affected Taxpayer s as defined in the Disaster Relief Notice and postpones deadlines falling between the Disaster Date in the Disaster Relief Notice and the last day of the Postponement Period to the last day of the Postponement Period. 

Example A: Disaster Date is May 15, and the last day of the Postponement Period is September 15. The Taxpayer is an Affected Taxpayer as defined in the Disaster Relief Notice and disposes of their Relinquished Property on May 16 (after the Disaster Date), the 45th day is June 30, and the 180th day is November 12. Under Section 6, the ID deadline is postponed to September 15, the last day of the Postponement Period. The exchange period deadline is not postponed because it did not fall between the disaster date and the last day of the Postponement Period. 

Section 17 applies to both Affected Taxpayers and Non-Affected Taxpayers who otherwise qualify for the disaster relief. It is important to note that for Section 17 to apply, the Relinquished Property must have been transferred (or the parked property must have been parked), on or before the Disaster Date. Section 17 permits both 1031 Exchange deadlines to be postponed for 120 days or until the last day of the Postponement Period, whichever is later. However, under no circumstances may the postponement go beyond (a) the due date, including extensions, of the Exchanger’s tax return for the year of the transfer, or (b) one year.11 

Example B: Same basic facts as Example A. The Affected Taxpayer cannot benefit from Section 17 postponements because the transfer of the Relinquished Property occurred after the Disaster Date. This Taxpayer does not obtain the 120-day postponement. 

Example C: Same basic facts as Example A, however, the Affected Taxpayer sold the Relinquished Property on May 1, before the May 15 Disaster Date, and has a 45-day deadline of June 15 and a 180-day deadline of October 28. If this Affected Taxpayer chooses Section 17 relief, then they may extend both their 45-day and 180-day deadlines by 120 days or until the last day of the Disaster Period, whichever is later. 

How to Obtain Disaster Relief 

For Exchanger s located in the disaster area, the IRS maintains a list of the ZIP codes located within the disaster area and administratively tags the accounts of those Exchanger s. The IRS automatically provides filing relief to these Exchanger s, and they do not need to do anything further.  

As discussed above, there are categories of Affected Taxpayer who are not physically located within the disaster area. Individuals who qualify for relief but who are not physically located within the disaster area must inform the IRS that they have been impacted by the disaster. These individuals must contact the IRS by calling 866-562-5227. It is important to remember that Affected Taxpayer s also includes workers affiliated with recognized government of philanthropic agencies assisting the relief activities. 

To qualify for an extension on 1031 Exchange deadlines, the Exchanger must qualify for relief under both the specific Disaster Relief Notice and the terms of Rev. Proc. 2018-58.12 

Exchangers who believe that they may qualify for disaster related extensions on the 1031 Exchange s must consult with their tax and legal advisors. Upon determining that they qualify for such extensions, they must then promptly notify their Qualified Intermediary so that the Intermediary may properly notate the exchange files. 

 

The material in this blog is presented for informational purposes only. The information presented is not intended as investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary , and as such does not offer or sell investments or provide investment, legal, or tax advice.   

 

Sources:

1. Wildfires in California, Hawaii, and Washington. Tornadoes in Arkansas, Florida, Illinois, Iowa, Kentucky, Missouri, Mississippi, and West Virginia. Tropical storms in Florida, Louisiana, North Carolina, Pennsylvania, Puerto Rico, Tennessee, the U.S. Virgin Islands. Flooding in Alaska, Arizona, Arkansas, California, Connecticut, Illinois, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Missouri, New Mexico, New York, Rhode Island, South Dakota, Texas, and West Virginia.

2. IRC §1031(a)(3).

3. 42 USC 5121, et seq.

4. Strafford Act Section 102(2); 42 USC 5122.

5. 26 USC §7508A. 

6. 26 USC §7508A(d)(2).

7. Notice 2023-71 provided relief to taxpayers who were unable to meet filing or payment deadlines due to the terrorist attacks in Israel in October 2023.

8. Rev. Proc. 2007-56, Section 3; Rev. Proc. 2018-58, Section 3.

9. Rev. Proc. 2007-56, Section 17; Rev. Proc. 2018-58, Section 17.

10. Rev. Proc. 2018-58, Section 17.02(1).

11. Rev. Proc. 2018-58, Section 17.02.

12. Rev. Proc. 2018-58, Section 17.02(2)(b)