Making Assumptions Could Cost Millions

Adam Hecht, Real Estate

To all of my real estate colleagues:

A lot of you received emails and saw posts advising that IRS Notice 2020-23extends the deadlines for identifying replacement properties and closing on such replacement properties as part of a tax-deferred exchange under Internal Revenue Code 1031.  While this is, in a general sense, true, it is not the whole story.  

Looking at these provisions, the extension may NOT be available for everyone.  For example, IRS Notice 2020-23 references Revenue Procedure 2018-58, which allows the extension of the 45 and 180 day periods only if certain conditions are met.  One of the criteria is that the relinquished property had to have been transferred on or before the date of the federally declared disaster (March 13, 2020).  If you closed on the sale of the relinquished property after March 13th, you may be stuck with the original deadlines.  Further, to get an extension, the taxpayer also has to show that it is “having difficulty meeting the 45 day identification period or 180 day exchange period” for one of a specified list of reasons, most having to do with someone involved being directly affected by the federally-declared disaster.  

To make a long story short, don’t assume that you have extra time to complete your tax-deferred exchange.  Make sure your counsel is familiar with these relevant statutes, administrative regulations and procedural rules before proceeding.  The last thing you want to do is make an assumption that turns out to be a multi-million dollar mistake, one that was avoidable.