On April 9, 2020, the IRS issued Notice 2020-23 (an update to Notice 2020-18) which includes important deadline extensions for taxpayers performing a time-sensitive action listed in either Treasury Regulation Section 301.7508A-1(c)(1)(iv)-(vi) or IRS Revenue Procedure 2018-58. Among such time-sensitive actions certain accounting method and period changes, elections under Sections 83(b) and 338(h)(10) of the Internal Revenue Code of 1986 (the “Code”), and identifying, purchasing, and/or selling property in connection with a like-kind exchange under Code Section 1031 (so-called “1031 Exchanges”).
1. Deadline Extensions for “Forward” 1031 Exchanges:
- Identifying Replacement Property: A taxpayer who sold “relinquished property” before March 13, 2020 in a “forward” or traditional 1031 Exchange would normally have to identify “replacement property” within 45 days of the sale of the “relinquished property”. However, pursuant to Notice 2020-23, if the deadline for identifying the “replacement property” was due on or after April 1, 2020 and before July 15, 2020 under the normal deadline, then the deadline for identifying the “replacement property” is extended to July 15, 2020.
- Purchasing Replacement Property: A taxpayer who sold “relinquished property” before March 13, 2020 in a “forward” or traditional 1031 Exchange would normally have to purchase “replacement property” within 180 days of the sale of the “relinquished property”. However, pursuant to Notice 2020-23, if the deadline for purchasing the “replacement property” was on or after April 1, 2020 and before July 15, 2020, then the deadline for purchasing the “replacement property” is extended to July 15, 2020.
2. Deadline Extensions for “Reverse” 1031 Exchanges:
- Identifying Relinquished Property: A taxpayer who purchased “replacement property” before March 13, 2020 in a “reverse” 1031 Exchange would normally have to identify the “relinquished property” within 45 days of the purchase of the “replacement property”. However, pursuant to Notice 2020-23, if the deadline for identifying the “relinquished property” was due on or after April 1, 2020 and before July 15, 2020 under the normal deadline, then the deadline for identifying the “relinquished property” is extended to July 15, 2020.
- Selling Relinquished Property: A taxpayer who purchased “replacement property” before March 13, 2020 in a “reverse” 1031 Exchange would normally have to sell the “relinquished property” within 180 days of the purchase of the “replacement property”. However, pursuant to Notice 2020-23, if the deadline for selling the “relinquished property” was on or after April 1, 2020 and before July 15, 2020 under the normal deadline, then the deadline for selling the “relinquished property” is extended to July 15, 2020.
The Notice provides relief for real estate investors whose 1031 Exchanges have been impacted by the COVID-19 pandemic.
Bill Locke is a shareholder in the firm’s Banking & Finance, Construction Law, and Real Estate sections.
Frank L. Leffingwell is a tax attorney in the firm’s Tax Planning & Controversy, Estate Planning, Probate & Trusts, and Real Estate sections.