If you have an exchange or your 45 days is up on March 31st, does that extend you into July 15? Currently, this is not clear.
Investors that have like-kind exchange or chance zone deadlines between April 1 and July 15 have slightly more time to close their deals. The IRS issued new advice Thursday night that allowed all taxpayers, such as”trusts, estates, corporations and other non-corporate tax filers” a filing extension until July 15. Unsplash/HelloquenceThe National Association of Realtors advised its members that the choice benefits investors that are involved in 1031 exchanges or chance zone investments. With 1031 exchanges, investors that have to close on a property between July 15 and April 1 or spot have until July 15. Although many experts called for the IRS to extend those deadlines, what the bureau released Thursday night was met with more confusion than applause.
Tax experts agreed they are covered under the broadening of the expansion, although it will not address exchanges or opportunity zone investments especially. “Lots of really smart and very knowledgable individuals are only scratching their heads on this,” said Suzanne Goldstein Baker, the general counsel of Investment Property Exchange Services Inc.. “It is different because it is broader, since it covers a good deal of ground,” but the guidance doesn’t address 1031 exchange provisions specifically, said Baker, who’s the co-chair of the government relations committee of the Federation of Exchange Accommodators. “It is mind-numbing.” 1031 like-kind exchanges enable property investors to sell 1 asset — from condos to warehouses to office buildings — identify a similarly appreciated property to purchase with the proceeds within 45 days and close on it within 180 days. Those investors can avoid paying any capital gains taxes in doing this. Under the new IRS guidance, the 45-day deadline and the 180-day deadline could be extended out to July 15, assuming both of these dates falls between April 1 and July 15. But if an investor now has until July 15 to identify the land, the first 180-day final date will probably remain since it falls outside the affected date ranges,” Baker said. Numerous prominent commercial real estate organizations — such as the Associated General Contractors of America, The Real Estate Roundtable, the Building Owners and Managers Association, the National Multifamily Housing Council, the International Council of Shopping Centers, NAIOP and NAREIT — recently petitioned U.S. Treasury Secretary Steven Mnuchin to extend the deadlines by which investors can buy replacement properties for recent earnings by including 120 days to both deadlines. The IRS has allowed similar flaws before through disaster declarations in some geographical locations that have experienced natural disasters or crises. Calls to the IRS weren’t returned as of press time. It was uncertain in the event the guidance is the extent of it or if the IRS was considering other coronavirus relief for exchanges. NAR spokesperson Wesley Shaw said the organization does not anticipate any further immediate IRS advice on like-kind exchanges. “If we’re coming July 15 and it seems that exchanges can not be completed due to then-current conditions, work may start again on expansion,” Shaw said in an email. Greenberg Glusker Fields Claman & Machtinger spouse Warren”Skip” Kessler said he was frustrated with the IRS actions. Kessler represents owners and property companies, including those in 1031 exchange investments. “In the past, the Department 1031 extensions were 120 days and more in certain circumstances. Acquiring a commercial property is a complex process and frequently leads to a decision not to move after months of work. Further, funding at the best of times is challenging and time-consuming,” Kessler wrote in an email. “Add to the typical concerns, that pricing is unclear when even Fortune 50 companies aren’t paying their rent and lots of existing tenants will shut their doors, I wouldn’t be surprised if the actual estate settlements for longer time intervals for 1031 extensions and think it’s appropriate to do so.” Nonetheless, NAR officials hailed the IRS move. “During recent weeks, NAR strongly advocated for tax payment deadline extensions — such as for 1031-like-kind exchanges and Opportunity Zone investments — because this pandemic left tiny businesses and independent contractors especially vulnerable,” NAR President Vince Malta stated in a release. “NAR’s national advocacy staff in Washington has kept in constant contact with the IRS and Treasury Department since this crisis began, and the deadlines extended Thursday will offer instant relief from some of the disruptions brought on by COVID-19.” Regardless of the confusion, Baker said, the move does provide some relief to people under the gun to generate property purchases. “Frankly, the IRS does not need to do anything,” Baker said. “[Investors] might not have the three-tiered wedding cake with a cherry on top, but they have something more than they had yesterday.”