In response to the ongoing COVID-19 pandemic, yesterday, the IRS published Notice 2020-23, which appears to extend important 1031 exchange deadlines.
According to the Notice, if an exchangor's 45-day identification period or 180-day exchange period ends between April 1 and July 15, 2020, then their deadline may be extended until July 15, 2020.
This unusual response from the IRS may be welcome news for taxpayers conducting 1031 exchanges. However, there are a few things that the Notice leaves unclear, such as:
Whether this relief applies only to 1031 exchangors who still have their exchange proceeds with a qualified intermediary. If an exchangor has already received their proceeds from the intermediary, do they have the option of continuing their exchange now that the deadlines have been extended? For example, if an exchange started on October 5, 2019, and the standard 180-day exchange period ended on April 2, 2020, and the intermediary has returned unused funds to the exchangor, can the exchangor nevertheless continue the exchange under the extended time frames until July 15, 2020, notwithstanding that they've received their funds back?
Whether this extension is elective or automatic. Does this automatically extend all 1031 exchange deadlines to July 15? What if a taxpayer doesn't wish to extend their deadline that far? Do they have a choice? For example, if an exchangor identified a hotel as their replacement property, which is now unoccupied and undesirable as a purchase because of the coronavirus, and the exchangor has elected not to purchase this replacement property, are they now required to wait until July 15 to get their unused funds back from an exchange that they've decided to forego?
What does this mean for taxpayers starting new exchanges? For people starting new exchanges on or after April 9, 2020 (when the IRS Notice 2020-23 was released), the extension may push back the date on which their replacement property identification deadline is due. For example, if you close on your relinquished property on April 10, typically, your 45-day identification period ends at midnight on May 25, 2020. Still, with the new extension, July 15 appears to be the new deadline for identification.
We are actively investigating these and other issues so that we can understand how to guide our clients through their 1031 exchanges. As always, I am available to start the conversation at 612.643.1031. I thank you and look forward to continuing the exchange.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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