Under the new IRS guidance, the 45-day and 180-day 1031 exchange deadline could be extended out to July 15, assuming either of those dates falls between April 1 and July 15.
The IRS has put delays in place before for certain areas in the U.S. facing natural disasters or emergencies. Commercial real estate organizations argue the state of the nation doesn’t allow for the proper due diligence necessary to purchase a property and complete a 1031 exchange with confidence.
1031 exchanges, also known as like-kind exchanges, allow real estate investors to sell one investment or business property and buy a similar asset within 180 days. By doing this, investors can avoid paying capital gains taxes to the IRS.
“More than a third of all property sales use 1031 exchanges, which means potentially thousands of investors who sold properties in late 2019 are under the gun to buy something soon to avoid capital gains taxes, unless the IRS extends the deadline,” according to Bisnow.com.
Many real estate transactions have come to a halt because of government mandates ordering businesses to close. The shutdowns and slowdowns businesses are facing also cause issues when it comes to determining the value of real estate, since many commercial tenants are seeking rent abatements or refusing to pay rent at all. Since most of the world has slowed, 1031 buyers have been asking for some relief as well.
“This quagmire has led some of CRE’s leading organizations – including the Associated General Contractors of America, The Real Estate Roundtable, the Building Owners and Managers Association, the National Multifamily Housing Council, the International Council of Shopping Centers, NAIOP and NAREIT – to petition U.S. Treasury Secretary Steven Mnuchin to extend the deadlines by which investors can purchase replacement properties for rent sales,” according to Bisnow.com.
“If you or someone you know is currently in a 1031 exchange, or soon to be, please consult with your 1031 accommodator for full details, but here is how I understand it,” said Mark McLoone Managing Partner of Retail Investment Group. “It appears that if your 1031 ID period or your 180 day deadline falls between April 1, 2020 and July 15, 2020, you can elect to get this deadline pushed to July 15, 2020.”
At the moment, neither the Treasury Department nor the IRS has announced an official decision on the matter.
“Things are changing at a much faster pace now than even 1 month ago,” said McLoone. “We are here to help and will continue to do our best to keep you informed.”