California Natural Disasters: 1031 Exchange deadlines extended
Mother nature can come at the most inopportune times, especially for real estate investors who are trying to relinquish or replace their investment properties through a 1031 exchange. For those who are victims of the severe weather that rampaged through so many counties in all of California, starting January 8, 2023, you may be entitled to some tax relief.
According to the most recent IRS announcement (click here for link), dated January 11, 2023, those involved in a 1031 exchange, who are eligible, may have their 45-day and 180-day deadlines extended.
Who is Eligible for these extensions?
An “Affected Taxpayer”, which is defined as:
1) Any individual whose principal residence is located in the Disaster Area
2) Any business entity or sole proprietorship that has its principal place of business located in the Disaster Area
3) Any individual who is a relief worker and is assisting with the Disaster Area and 4) Any individual or business entity whose records are kept in the Disaster Area
What if my investment property is not directly affected, but a party to the transaction is?
Any person who is having “difficulty” in meeting their 1031 exchange deadlines due to one of the following reasons is eligible to have their 45-day and 180-day deadlines extended:
1) The relinquished or replacement property is located in the Disaster Area
2) The principal place of business of any party to the transaction (i.e. escrow, lender, qualified intermediary) is located in the Disaster Area
OR
3) Another reason listed in Rev. Proc. 2018-58, Sect. 17 (such as lender being unable to fund in time, inability to obtain title insurance, etc.)
Which California Counties are considered part of the Disaster Area?
Taxpayers residing in, or whose principal place of business or books and records are located in these affected counties: Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba
What is the extension for the 45-day identification period?
Taxpayers who began their IRC §1031 exchange between November 24, 2022 and January 8, 2023, are eligible to extend the 45-day identification period to the later of May 15, 2023 or 120 days after the original 45-day deadline
What is the extension for the 180-day exchange period?
Taxpayers who began their IRC §1031 exchange between July 12, 2022 and January 8, 2023, are eligible to extend their 180-day exchange period to the later of May 15, 2023 or 120 days after the original 180-day deadline. (*Please note that the taxpayer may need to extend the time for filing his/her 2022 tax return to obtain this benefit)
Considering how devastating and stressful this may be to those whose taxpayers directly affected in the areas listed above, the IRS will automatically provide filing and penalty relief to those taxpayers with an IRS address of record located in the Disaster Area. Therefore, it is not necessary to contact the IRS to get this relief but suggested you contact your legal advisor to discuss.
To those who live outside the Disaster Area but the property involved in the 1031 exchange is located within the Disaster Area with an address of record, the IRS will work with you and asks that you call 866-562-5227.
To learn more about the specific details posted in this recent announcement, click here, or contact us at 805-738-2599 and we are happy to go over this information with you.
Southern California Exchange Services excels at helping clients strategize and optimize their real estate investments through 1031 Tax Deferred Exchanges nationwide. We are committed to helping our clients pursue and realize their financial goals and are ready to help you, too. If you have any questions about the 1031 Tax Exchange, or are ready to take the first step, please visit our website or reach out to us at info@sces1031.com We look forward to hearing from you!