Extension of 1031 Exchange Deadlines Due to COVID-19 Crisis

Accruit, LLC is closely monitoring any 1031 exchange deadline extensions due to COVID-19 on both a state and federal level through the Department of Treasury and IRS. 

On March 23, 2020, a real estate coalition, including but not limited to, the Federation of Exchange Same as intermediary, facilitator, or Qualified Intermediary. The party who facilitates a tax-deferred exchange by acquiring and selling property in an exchange to aid the taxpayer in complying with Section 1031 and all applicable rules. Accommodator s (FEA), of which Accruit is a Board level member, sent a joint letter to Treasury Secretary Steven Mnuchin and other policy makers at the Treasury Department and IRS requesting guidance to delay the deadlines applicable to 1031 like-kind exchanges that are currently underway due to the COVID-19 crisis. The signatories to the joint letter dated March 23 include twenty-one associations representing a broad spectrum of the real estate industry, such as qualified intermediaries, property owners and operators, investors, lenders, title insurers and closers, realtors and others concerning all asset classes. The March 23 joint letter specifically requests that deadlines to identify replacement property and/or complete like-kind exchanges should be extended to the later of 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance, similar to the relief described in Section 17 of Rev. Proc. 2018-58 and authorized under IRC § 7508A which has been historically used for regions hit by natural disasters like tornadoes or hurricanes.

Also, IRS Notice 2020-18 automatically extended the time for filing of federal tax returns and payment of federal income tax payments to July 15, 2020. This Notice expands the extension to any (“Exchangor" or "Exchanger") Individual or entity desiring an exchange. Taxpayer (including individuals and entities) that have a federal tax payment or a federal income tax return due April 15, 2020. Affected (“Exchangor" or "Exchanger") Individual or entity desiring an exchange. Taxpayer s do not have to file Forms 4868 or 7004 to receive the extension, and there is no limitation on the amount of the payment that may be postponed.

On a state level, California was the first to take action. The California Franchise Tax Board (CA FTB) has extended the due dates for multiple taxes, including non-wage withholding, to July 15, 2020 due to COVID-19. This extension includes the filing of Form 593 and payment of real estate withholding per Form 593-V.

The signatories of the joint March 23 letter are awaiting written guidance from the IRS in response to the request for extensions. Currently, the regular deadlines remain in place. The disaster provisions have been used many times to extend 1031 guidelines in the past, and we are hopeful the IRS will fall back on the existing procedures once it issues formal guidance. We are keenly aware that it is hard to be patient; however, this is an unprecedented upheaval for every sector.

Relief for our 1031 exchange clients is paramount to all of us. Although the information contained in this article is not to be considered tax or legal advice and taxpayers should consult independent counsel with regard to the particular matter, Accruit will timely respond to our clients with any questions about their pending exchanges, continue to monitor the situation very closely and share any information on extensions as soon as it becomes available. You may continue to check on Accruit’s website for any further updates.