Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

Under Section 1031 of the United States Internal Revenue Code, a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property, a process known as a 1031 Exchange.

With the disruption and economic consequences of the COVID-19 Pandemic and shelter-in-place restrictions, it is becoming increasingly difficult for sellers to complete their exchanges within the specified time limits. These strict timelines to identify replacement property and close the purchasing of new property are:

  1. Within 45 days of the sale of the property the seller must identify a replacement property.
     
  2. Within 180 days of the sale, the seller must purchase the replacement property.

Following the issuance by the President of the United States of an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act on March 13, 2020, Treasury Notice 2020-23 was released on April 9, 2020 to assist sellers with extensions of 1031 exchange deadlines. These new guidelines for taxpayers that intend to complete a Section 1031 like-kind exchanges are:

  • If the taxpayer’s 45-day period to identify replacement property (in the case of a “forward” exchange), or relinquished property (in the case of a “reverse” exchange), expires on or after April 1, 2020, and before July 15, 2020, the taxpayer has until July 15, 2020, to complete the identification; or
     
  • If the taxpayer’s 180-day period to purchase replacement property (in the case of a “forward” exchange), or to sell relinquished property (in the case of a “reverse” exchange), expires on or after April 1, 2020, and before July 15, 2020, the taxpayer has until July 15, 2020, to complete the exchange (assuming the due date—including extensions—of the taxpayer’s tax return for the year of the transfer is not before July 15, 2020).

Note that Notice 2020-23 does not apply retroactively to 45-day identification and 180-day exchange periods expiring prior to April 1, 2020.

On the Horizon
On April 20, 2020, the Federation of Exchange Accommodators (FEA), along with 18 other trade associations, sent a letter to Treasury Secretary Steven Mnuchin requesting clarification of the Treasury Notice 2020-23 granting extensions for taxpayers engaged in like-kind exchanges, originally published on April 9.

The letter includes a request that the extension relief begin on March 13; the date that the President declared a national emergency. Additionally, the letter requests that each day between March 13 and July 15 be treated as a federally declared disaster date and that a taxpayer who has a critical date between March 13 and July 15 be granted an extension of both critical dates.

The Chicago Deferred Exchange Team is closely monitoring this situation and will keep you informed of any changes to timeline extensions and other related issues regarding 1031 exchanges.