What You Should Know About OZ and 1031 Exchange Deadline Extensions

Originally published by Phil Jelsma for Commerical Property Executive

The coronavirus outbreak has prompted multiple deadline extensions by the Internal Revenue Service, many of which have major implications for commercial real estate investors.

On Thursday, April 9, the IRS issued Notice 2020-23, which extends several time-sensitive tax deadlines including those for Section 1031 Exchanges and Opportunity Zone Investments.

In a Section 1031 exchange, which allows deferral of capital gains taxes on the sale of certain investment properties, an investor who sells real estate held for productive use in a trade or business or for investment can defer taxes if the investor identifies replacement properties within 45 days of the sale and within 180 days of the sale completes the acquisition of one or more replacement properties. The new IRS guidance extends both the 45-day deadline and the 180-day deadline, if those deadlines would have expired on or after April 1, 2020, to July 15, 2020. Thus, if the investor’s identification period was open as of April 1, 2020, it is automatically extended to July 15, 2020. Similarly, if the 45‑day identification period had expired before April 1, 2020, but the 180-day exchange period was open as of April 1, 2020, the 180-day exchange period is extended to July 15, 2020. This creates some interesting situations.

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