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IRS Grants Much-Anticipated Section 1031 Extensions

By Procopio Partner Robert J. Brown

The Internal Revenue Service (IRS) on April 9, 2020, issued Notice 2020-23, providing the much-anticipated relief for taxpayers pursuing so-called “Section 1031” tax deferred exchanges. This extension allows exchanging taxpayers whose 45-day identification period or 180-day replacement property closing deadline falls after April 1, 2020, to extend that deadline until July 15, 2020. However, Notice 2020-23 extends the outside date for both identification and closing to the same outside date (July 15, 2020).

For example, a taxpayer whose relinquished exchange property was disposed of on February 28, 2020, normally would have until April 13, 2020 (45 days) to properly identify exchange replacement property; and that same taxpayer would have until August 26, 2020 (180 days) to close the acquisition of the exchange replacement property. Notice 2020-23 would extend that taxpayer’s 45-day identification deadline by an additional 93 days until July 15, 2020 (which is helpful), but would not further extend that taxpayer’s 180 day closing exchange (which still remains August 26, 2020).  As a result, if that taxpayer successfully identified replacement property on July 15, 2020, for example, then that taxpayer would have a mere 42 days to complete its due diligence, financing, and close its replacement property acquisition.

While the relief granted by Notice 2020-23 will no doubt be helpful to many, it may also fall short for many real estate investors seeking to identify and acquire replacement property in the current marketplace. 

As each taxpayer’s situation is different and there may be further changes in tax deadlines and procedures, working with qualified tax advisors is essential to taxpayers looking to defer their gain in an intended Section 1031 exchange. Please consult your tax advisor, and Procopio’s Tax Law Team is ready and willing to assist.

 

Robert J. Brown is a Partner on Procopio's Tax Law team. He counsels clients on corporate and securities, real estate and tax. Robert’s practice focuses on tax and transactional planning and consulting over a broad range of business matters. He is experienced in tax planning, financing and structuring for real estate, joint ventures, private placement, as well as negotiating land acquisitions and financing.