Real Estate Industry Insights

Disaster Relief Also Available for Section 1031 Exchanges

Earlier today, we shared information on disaster relief available to taxpayers affected by Hurricane Ian. Disaster relief is also available to those currently in the middle of Section 1031 exchange transactions. The 45-day and 180-day deadlines have been postponed for the entire states of Florida, South Carolina, and North Carolina. The start of the disaster dates are:

  • Florida: September 23, 2022
  • South Carolina: September 25, 2022
  • North Carolina: September 28, 2022

The general postponement date is February 15, 2023.

Revenue Procedure 2018-58 provides two different sections that can be relied upon in these situations.

  • Section 6: This section applies to affected taxpayers only. Any 45-day deadline or 180-day deadline that falls on or after the disaster date above is postponed, which in this case would be until February 15, 2023.
  • Section 17: This section is applicable to affected taxpayers and other taxpayers who have difficulty meeting the 45-day or 180-day exchange period deadline due to a federally declared disaster. A taxpayer who is a transferor qualifies for a postponement under this section only if the relinquished property was transferred on or before the date of the federally declared disaster. If the last day of a 45-day identification period or the last day of a 180-day exchange period falls on or after the date of the federally declared disaster, the periods are postponed by the later of 120 days from the period or the last day of the general disaster extension period. However, in no event may a postponement period extend beyond the due date, including extensions, of the return for the year of the transfer, or one year. Examples of potential difficulties are if the relinquished property or the replacement property is located in a covered disaster area; the principal place of business of any party to the transaction is located in the covered disaster area; a party of the transaction is killed, injured, or missing as a result of the federally declared disaster; documents are missing as a result of the federally declared disaster; a lender decides permanently or temporarily to not fund a real estate closing; or insurance cannot be secured in order to settle or close the real estate transaction.

While situations such as these can be pretty confusing, our Section 1031 exchange compliance and consultation team is here to help. Please reach out with any questions.

A big thanks to Jeremy Siebert for authoring this blog post.

Tags: , , , , , , Federal and state taxation, including proposed regulations, Year-end tax planning | 3 Comments ยป

  • Managing Principal of Industry - Real Estate
  • CliftonLarsonAllen LLP
  • Century City (Los Angeles)
  • (310) 288-4220

Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.

Comments

  • Darren
  • October 14, 2022

Has there been any talk for timing extensions for owners or investors in Opportunity Zones? Seems the same would apply.

Thanks,
Darren

  • Brian Duren w/ CLA
  • October 20, 2022

Hello Darren,
Excellent question. We make the following two observations in response.

Deferral Election
The election to defer recognition of capital gains under Sec. 1400Z-2(a) must be made on a timely filed income tax return, including extensions. Since the extended due date of October 17, 2022 for most individual taxpayers affected by the hurricane was generally postponed until February 15, 2023, tax returns filed under the authority of this relief will be considered timely filed. Accordingly, affected opportunity zone investors who are electing to defer capital gain should be able to utilize the postponed due date to file their individual return containing the Sec. 1400Z-2(a) deferral election.

180-Day Period to Invest Capital Gains
With respect to the 180-day period, we do not believe relief is available to postpone the date during which an investor may make a contribution to a qualified opportunity fund. No references have been made to opportunity zone investments in the disaster relief guidance contained in FL 2022-19, NC 2022-10, and SC 2022-06, which generally refer to the series of time-sensitive actions specifically listed in Rev. Proc. 2018-58. Accordingly, since the act of investing in a qualified opportunity fund is not specifically listed in Rev. Proc. 2018-58 or the other specified disaster relief guidance, postponement of the 180-day investment period is not allowed.

  • Brian D (CLA)
  • October 23, 2022

Hello Darren,
Excellent question. We make the following two observations in response.

Deferral Election
The election to defer recognition of capital gains under Sec. 1400Z-2(a) must be made on a timely filed income tax return, including extensions. Since the extended due date of October 17, 2022 for most affected individual taxpayers was generally postponed until February 15, 2023, tax returns filed under the authority of this relief will be considered timely filed. Accordingly, affected opportunity zone investors who are electing to defer capital gain should be able to utilize the postponed due date to file their individual return containing the Sec. 1400Z-2(a) deferral election.

180-Day Period to Invest Capital Gains
With respect to the 180-day period, we do not believe relief is available to postpone the date during which an investor may make a contribution to a qualified opportunity fund. No references have been made to opportunity zone investments in the disaster relief guidance contained in FL 2022-19, NC 2022-10, and SC 2022-06, which generally refer to the series of time-sensitive actions specifically listed in Rev. Proc. 2018-58. Accordingly, since the act of investing in a qualified opportunity fund is not specifically listed in Rev. Proc. 2018-58 or the other specific disaster relief guidance, postponement of the 180-day investment period is not allowed.

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