Hurricane Relief to Property Owners Engaged in 1031 Property Exchanges

Posted on September 18, 2017

In addition to extending the deadlines of certain 2016 tax returns and payments for victims of Hurricanes Harvey and Irma, the IRS is giving affected taxpayers in the middle of a Section 1031 tax-deferred exchange extra time to identify and/or close on replacement property. This extension of time applies to taxpayers who live or own businesses in areas considered presidentially declared disaster areas and who were engaged in a Section 1031 exchange and sold property on or before September 10, 2017, for those impacted by Hurricane Irma, or August 23, 2017, for victims of Hurricane Harvey.

 

Affected taxpayers in Texas, Florida, Puerto Rico and the U.S. Virgin Islands who did not yet pass the normal 45-day period to identify Section 1031 replacement property will have until the later of January 31, 2018, or 165 days from the date they sold their relinquished property to identify possible replacement properties.

 

Likewise, instead of the allowable 180-day period to close on identified replacement property, affected taxpayers will have until the later of January 31, 2018, or 300 days from the date they sold their relinquished property to close on the purchase of replacement property. Under no circumstances can the postponement extend beyond the due date of taxpayers’ 2017 tax returns, including regular extensions.

 

These IRS extensions also apply to taxpayers who engaged in 1031 exchanges on or before the applicable dates (Sept. 10 for victims of Hurricane Irma or Aug. 23 for Hurricane Harvey) and who have difficulty meeting the statutory exchange deadlines due to one of the following disaster-related reasons:

 

1. Either the replacement property or the relinquished property (in the case of a reverse tax-deferred exchange) is located in the covered disaster area;
2. The principal place of business of any party to the transaction (e.g. qualified intermediary, exchange accommodation titleholder, settlement agent, lender, title insurer) is located in the covered disaster area;
3. Any party to the transaction is killed, injured or missing as a result of the disaster;
4. A document relating to the exchange or a relevant closing document is destroyed, damaged or lost due to the covered disaster;
5. A lender decides to not fund because of the disaster or because of flood, disaster or other hazard insurance not being available due to the disaster; or
6. A title insurance company is unable to provide the required title insurance policy necessary to close due to the disaster.

In the event that a replacement property identified before the disaster sustains substantial damages, alternative replacement property may be identified by the later of January 31, 2018, or 165 days from the date the relinquished property was sold. Similar relief to the above is also available for reverse tax-deferred exchanges.

Storm victims should contact their qualified intermediaries to inform them of their eligibility and decision to take advantage of disaster-related tax deadline extensions.