COVID-19 has significantly impacted the real estate market. Many keen investors were involved in one or more IRC Section 1031 “Like-Kind” exchange transactions when the coronavirus shuttered businesses and forced entire communities to stay at home due to public health concerns. In a 1031 exchange, a real estate investor is permitted to defer taxes on any gain associated with the sale of a qualifying property if “the real property is exchanged solely for real property of a like-kind which is to be held for productive use in trade or business.” 26 U.S. Code § 1031. The property being sold is known as the “Relinquished Property” while the like-kind property being purchased is known as the “Replacement Property.”
In order to qualify for this tax deferment, a real estate investor must complete the Like-Kind transaction within the following strict time frames:
- One or more Replacement Properties must be identified within 45 days of the closing on the Relinquished Property (the “Identification Period”); and
- The entire transaction must be complete within 180 days of closing on the Relinquished Property (the “Exchange Period.”)
Due to the ongoing pandemic, these strict deadlines have been extended under Notice 2020-23: “Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic.” Importantly, Notice 2020-23 provides an automatic extension to July 15, 2020 for anyone with an Identification Period deadline or an Exchange Period deadline scheduled to expire between April 1, 2020 and July 15, 2020.
If your Identification Period deadline or Exchange Period deadline falls between the dates of April 1, 2020 –July 15, 2020, you now have until July 15, 2020 to make the required property identification or complete the exchange transaction.
The relief granted under Notice 2020-23 does not extend to transactions with an Identification Period deadline or an Exchange Period deadline prior to April 1, 2020.
The Business Group at Stock and Leader can help business owners navigate Like-Kind Exchange deadlines and any other legal needs. Contact a member of Stock and Leader’s Business Law team today.