IRS Grants Extensions for Like-Kind (Section 1031) Exchanges

April 21, 2020

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https://www.hmblaw.com/news/irs-grants-extensions-for-like-kind-exchange/

In Treasury Department Notice2020-23 (released April 9, 2020) and Internal Revenue Service update to Notice2020-18, the IRS provided additional relief for taxpayers amid the COVID-19 crisis by extending key deadlines for Like-Kind (Section 1031) Exchanges.  Specifically, the Notices extended some of the due dates related to the identification and final exchange periods.  These time periods are generally 45 days and 180 days after the closing of the sale of the relinquished property, but have now been extended during the crisis as set forth below.

If the 45^th day of the identification period occurs on or after April 1, 2020 through July 14, 2020, then this deadline is automatically extended to July 15, 2020.  Similarly, if the 180^th day of the final exchange period occurs on or after April 1, 2020 through July 14, 2020, this deadline is also automatically extended to July 15, 2020.

The extensions provided in Notice 2020-23 also apply to taxpayers involved in reverse like-kind exchanges. If the 45^th day to identify the relinquished property or the 180^th day to “un-park” a replacement property occurs on or after April 1, 2020 through July 14, 2020, then both deadlines are automatically extended to July 15, 2020.

Based on our review and understanding of Section 1031 and Notice 2020-23, please see the following examples below illustrating the impact on the applicable deadlines:

Example 1:

Taxpayer A sells relinquished property on March 1, 2020. The deadline for Taxpayer A to identify a replacement property in writing would normally be April 15, 2020. Pursuant to Notice 2020-23, this date is extended and the new deadline to designate the replacement property is July 15, 2020.  However, the final exchange deadline remains unchanged. Taxpayer A must still close on the purchase of the replacement property 180 days after the date of sale, August 28, 2020.

Example 2:

Taxpayer B identified and parked a replacement property on December 1, 2019.  Taxpayer B identified the replacement property to be sold was January 15, 2020. The 180^th day to complete the sale falls on May 29, 2020, however, Notice 2020-23 extended this deadline to July 15, 2020.

HMB Legal Counsel will continue to provide updates as the situation evolves. The ongoing issues related to the spread of the Coronavirus (COVID-19) have had and will continue to have a significant impact on individuals, families, businesses and markets. Visit our collection of resources providing guidance during these fast-changing circumstances. Please reach out to your lead team member to answer specific questions