IRS Extends Deadline for 1031 Exchanges Affected by the California Winter Storms

The severe winter storms, flooding, and mudslides that hit California on January 8, 2023, prompted the IRS to issue an initial extension of the 45- and 180-day deadlines for IRC §1031 exchange transactions on January 10, 2023. Subsequently, on February 24, 2023, the IRS further extended the deadlines. In light of the February 24, 2023, IRS notice, taxpayers who meet the requirements will receive an extended general postponement deadline of October 16, 2023. This extension will provide taxpayers with more time to identify a replacement property and complete their 1031 exchange transaction.
Below are the key points and frequently asked questions regarding the extension.

Who is eligible?

  • The extensions will be applicable to taxpayers who either reside in, or have their principal place of business or books and records located in any of the following counties: Alameda, Alpine, Amador, Butte, Colusa, Contra Costa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Inyo, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Nevada, 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, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Ventura, Yolo, or Yuba.
  • Eligible individuals who initiated an IRC §1031 exchange during the period spanning from November 24, 2022, to January 8, 2023, can extend their 45-day identification period until the later of October 16, 2023, or 120 days after the original 45-day deadline date, as a result of the extensions.
  • To receive this benefit, a taxpayer might have to request an extension for filing their 2022 tax return.

Which transactions are covered?

  • For forward exchanges: the Relinquished Property must have been transferred no later than January 8, 2023.
  • For reverse exchanges: the Exchange Accommodation Titleholder should have acquired the Replacement Property or the Relinquished Property, as applicable, by no later than January 8, 2023.

Who are eligible taxpayers?

The taxpayer must be one of the following:

  1. Affected Tax Payers:The term “Affected Taxpayer” encompasses several categories of individuals and entities, including:
    • Any individual whose principal residence is situated in the Disaster Area
    • Any business entity or sole proprietorship that has its primary place of business located in the Disaster Area
    • Any individual who is a relief worker and is providing assistance within the Disaster Area
    • Any individual or business entity that maintains its records within the Disaster Area.
  2. If a person encounters “difficulty” in meeting the 45- and 180-day deadlines due to any of the following reasons (or similar reasons), they may be eligible for an extension:
  • The Relinquished Property or Replacement Property is situated in the Disaster Area.
  • The principal place of business of any party involved in the transaction (such as a Qualified Intermediary, Exchange Accommodation Titleholder, transferee, settlement attorney, lender, financial institution, or title insurance company) is located in the Disaster Area.
  • Any other reasons stated in Revenue Procedure 2018-58, which include the death of any party to the transaction, the failure of a lender to fund the transaction, and the refusal of the title insurance company to issue a title insurance policy.

What are the new deadlines?

An Affected Person or a Person Having Difficulty in Meeting Deadlines can receive an extension of the 45-day identification deadline and the 180-day exchange deadline. The extension applies to any deadline on or after January 8, 2023 and will be extended to the later of October 16, 2023 or 120 days after the original deadline date.
However, the deadline cannot be extended beyond the due date of the taxpayer’s 2022 or 2023 tax return, depending on when the Relinquished Property was transferred or the Exchange Accommodation Titleholder acquired the Replacement Property. In addition, the deadline cannot be extended beyond 1 year.

In case a Relinquished Property was sold or a Replacement Property was acquired after January 8, 2023, and the initial 45-day identification deadline falls on or before October 15, 2023, the 45-day identification deadline will be extended to October 16, 2023. Moreover, if the original 180-day exchange deadline falls on or before October 15, 2023, the 180-day exchange deadline will be extended to October 16, 2023. It is worth noting that this extension is exclusively available to Affected Persons, and it is not accessible to Persons Having Difficulty in Meeting Deadlines.

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