Updated for 2023
2023 Tax Year Reminders
For the 2023 calendar year, taxes are due on Tuesday, April 18, 2023 instead of April 15th. Americans get 3 extra days this year because tax day cannot be on a weekend and Washington, D.C. observes the Emancipation Day holiday on April 17th.
Interestingly enough, according to our 2023 Tax Procrastinators research, 32% of Americans don’t know when the tax filing deadline is, especially the younger you are (53% of Gen Z, 33% of Millennials, 23% of Gen X, and 20% of Baby Boomers).
If you closed after October 16th, to get the full 180 days to complete your exchange, don’t forget to file an extension on your tax return.
If you are a resident of or have your principal place of business in California, Georgia or Alabama, you may be considered an “affected taxpayer” that is eligible to significantly extend the 1031 Exchange timelines. To determine if you are an “affected taxpayer” please review this blog post on our website and consult with your tax advisor.
Updated for 2022
2022 Tax Year Reminders
For the 2022 calendar year, taxes are due on Monday, April 18, 2022 as Washington, D.C. observes the Emancipation Day holiday on April 15. Taxpayers in Maine and Massachusetts have until April 19th to file this year due to the Patriots’ Day holiday.
Interestingly enough, according to our 2022 Tax Procrastinators research, 37% of Americans think it is on the usual date–April 15th. Luckily, 50% of our survey respondents say they’ve already filed their taxes.
When filing your federal taxes, don’t forget to report your Tax Deferred 1031 Exchange using Form 8824. Separate forms must be completed for each exchange you completed.
Payment and Due Date for Individual Tax Returns Extended to May 17
On March 17, 2021 the Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021 to May 17, 2021.
This means that individuals can postpone the filing of their tax returns and payment of their 2020 income tax until the new date. This postponement applies to all individuals, including those who pay self-employment taxes. Penalties and interest will not start to accrue for any unpaid balance until May 17, 2021.
You need not file any forms or call the IRS to qualify for the automatic extended due date. If you need additional time beyond May 17th you may request a filing extension until October 15, 2021. Note that this is only a filing extension, your tax liability must still be paid on or before May 17, 2021 in order to avoid liability for penalties or interest.
The IRS has recently announced that the federal tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021 to May 17, 2021. This means that not only can you postpone the filing of your return and payment of your tax liability, but the termination date of your exchange may be extended as well.
In a standard like kind exchange transaction your exchange period terminates on the earlier of the due date (including extensions) of your tax return or the 180th day after the transfer of your first Relinquished Property. The IRS announcement of the automatic extension may give you additional time to complete your exchange without any action on your part.
Example: If you are an individual taxpayer and your exchange began on November 11, 2020 you would have had to complete the acquisition of all of your identified replacement property by the due date of your tax return – April 15, 2021 – although May 10, 2021 is actually your 180th day. Your exchange period is truncated by the due date of your tax return. Now, because of the IRS announcement, you have your full 180 days, until May 10, 2021 to complete your exchange.
In addition to the IRS’ one-time automatic filing and payment extension to May 17th, an exchanger still retains the option to extend the filing date of their tax return for an additional 6 months by filing IRS Form 4868. This extension only applies to the filing of the exchanger’s tax return, not to the payment of your tax liability. The extension is granted automatically if you file Form 4868 by the due date of your return and you include the proper estimate of your 2020 tax liability. For exchangers this additional extension can lengthen the exchange period to allow the maximum time to complete your exchange.
Example: You begin your exchange on December 20, 2020. Under Section 1031 your exchange period terminates the earlier of May 17, 2021 – the due date of your return – or June 18, 2021, the 180th day of your exchange. By taking advantage of the automatic 6 month extension, the due date of your tax return is extended to November 17, 2021 and you have the full 180 days until June 18th to complete your exchange.
What if you don’t want your exchange period extended? If have no replacement properties to purchase and want access to your exchange funds before your filing due date or 180th day expiration, can you do so by filing your tax return early? The short answer is unfortunately, no. The language of Section 1031 is clear on this question.
Though you may file your return at any time up to the due date, the expiration of your exchange period does not occur until the earlier of the due date of your return or the 180th day after the transfer of your first Relinquished Property. That means that you cannot “shorten” your exchange period by filing your return early.
Though the IRS announcement of the automatic extension to May 17th is seen as a positive, it can have a negative effect on those exchangers who completed their exchange before April 15, 2021 and want to use their filing date as the termination date of their exchange.
Example: An exchanger began their exchange on November 2, 2020. Their 180th day would be May 1, 2021. If they choose to not buy all of their identified property and there are funds left over, the exchanger would normally be entitled to those funds on April 16, 2021 (the day after the due date of their return and thus termination of the exchange period). With the recent IRS announcement, however, the due date of the taxpayer’s return is currently May 17, 2021 and thus the exchanger would have to wait until May 2nd to receive their funds. No relief would be available by filing their tax return early because the due date is the key date for exchange purposes. Similarly, the April 15th date could not be used as the IRS announcement was clear that the for 2020 tax returns, the due date for individuals was moved to May 17, 2021.
This is a disappointing outcome for some exchangers who had hoped to have access to their remaining exchange funds on April 16, 2021. Most taxpayers, however, are pleased with the additional time allowed by the IRS to file their return and pay their tax liability.
This is a general overview of the recent IRS announcement and the impact it may have on taxpayers engaged in an exchange transaction. This is not intended to address any particular situation and not all taxpayers will be affected the same. You should consult your tax advisor for advice and guidance about your particular situation.