Due to the COVID-19 pandemic, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. Among the provisions of the Act, was the deadline extension for filing 2019 tax returns from April 15, 2020 to July 15, 2020.

However, the CARES Act made no mention of extensions for taxpayers with a Section 1031 exchange already in progress. Nevertheless, Rev. Proc. 2018-58 (issued in December 2018) permits the extension of Section 1031 exchange deadlines upon the issuance of an IRS Notice or other guidance permitting relief to taxpayers due to “Federally declared disasters.” Note that the extensions permitted under Rev. Proc. 2018-58 are not available until the IRS publishes its Notice granting relief.

Under Rev. Proc. 2018-58, “affected taxpayers,” receive an extension by the later of 120 days or the due date listed in the IRS Notice for the deadlines for the 45-day identification period and the 180-day exchange period. However, the postponement period will never extend beyond the due date (including extensions) of the taxpayer’s tax return for the year of the transfer, or one year. Within the body of each IRS Notice, the term “affected taxpayer” is clearly defined, and generally includes exchangers: 1) whose primary residence or principal place of business is located within the disaster zone, or 2) who will have difficulty meeting the 45-day and/or 180-day deadlines because of any of the following:

  • The relinquished property or the replacement property is located in the designated disaster zone
  • The principal place of business of any party to the transaction is in the designated disaster zone
  • A party to the transaction is killed, injured or missing due to the disaster
  • A necessary document relevant to the exchange or relevant land record is destroyed, damaged, or lost due to the disaster
  • A lender won’t fund because of the disaster
  • A title insurance policy cannot be issued due to the disaster

To be eligible for relief under Rev. Proc. 2018-58, the exchanger must have sold the relinquished property on or before the date of the federally declared disaster, or in the case of a reverse exchange, the exchange accommodation titleholder (EAT) must have taken possession of the title to either the relinquished or replacement property on or before the date of the federally declared disaster. Deadlines that fall on or after the date of the federally declared disaster will be extended by operation of the revenue procedure.

According to IRS Notice 2020-23, which was issued on April 9, 2020, “The Secretary of the Treasury has also determined that any person performing a time-sensitive act list in … Revenue Procedure 2018-58, 2018-50 IRB 990 (December 10, 2018), which is due to be performed on or after April 1, 2020, and before July 15, 2020 (Specified Time-Sensitive Action) is an affected taxpayer.” Left unanswered by the Notice is whether the taxpayer must have commenced their Section 1031 exchange before the Notice was issued or whether it will apply prospectively.

What does this mean for exchangers?

If an exchanger’s 45-day identification period expires between April 1, 2020 and July 15, 2020, it will now expire on July 15, 2020. Moreover, if an exchanger’s 180-day exchange period expires between April 1, 2020 and July 15, 2020, it, too, will now expire on July 15, 2020.

As an example, an exchanger who disposed of his or her relinquished property on February 16, 2020, would have a 45-day identification deadline of April 1, and a 180-day exchange deadline of August 14. Under the terms of Notice 2020-23, the identification deadline will now be July 15, but the exchange deadline will remain August 14, since it was not within the April 1, 2020 and July 15, 2020 window.

Wilmington Trust 1031 Exchange LLC will continue to monitor any new guidance from the IRS and inform you of any changes that may be relevant to your exchange. As always, you should consult your tax and legal advisors.

IRC Section 1031 allows taxpayers to defer the gain on the disposition of business or investment real estate, if that real estate is replaced with other business or investment real estate, within specific timeframes. Consult your tax or legal advisor for additional information on the requirements and limitations of such exchanges. Wilmington Trust 1031 Exchange LLC is a wholly owned subsidiary of Wilmington Trust, N.A. *Wilmington Trust 1031 Exchange LLC does not provide tax or legal advice to clients. Please consult professionals in those areas before making any decisions.