Covid-19 1031 Exchange FAQs
During these unusual times, we have been receiving many 1031 Exchange related inquiries from our IPX1031 community. Be sure to check out our Coronavirus Resource page for the latest news. And we are always available to answer questions! Below are some of the most popular:
The following information is based on a “plain language” reading of IRS Notice 2020-23. It is important for you to discuss with your tax advisor how it applies to your specific situation.
Do the typical disaster relief 120 day extensions qualify for COVID-19 extensions?
On August 11, the IRS finally published clarification that the 120 day extensions available for typical disaster relief DO NOT APPLY to the COVID-19 disaster relief granted in Notice 2020-23. The IRS confirmed that the sole relief granted for like-kind exchanges was the stated limitation in Notice 2020-23, that only the §1031 deadline that fell between April 1, 2020 and July 14, 2020 could be extended to July 15, 2020.
Do I qualify for COVID-19 extensions?
If you are in a current exchange and either your original 45 or 180 day deadline falls between April 1 and July 15, 2020, that 1031 deadline has been extended to July 15, 2020. Notice 2020-23, is unlike previous Disaster Relief Notices that have been issued by the IRS and as a result, many tax professionals have questions concerning its guidance. Numerous real estate organizations have asked the IRS for clarification.
What does the COVID-19 extension mean if I am contemplating starting an exchange?
If you begin an exchange before May 31st, according to Notice 2020-23, your 45 day identification period deadline would be extended to July 15th. This gives you a little more time to identify properties and make changes to any previous identifications, if needed.
What does the COVID-19 extension mean if I already have begun my 1031 Exchange?
- If your exchange began between February 16 and May 31, 2020, Notice 2020-23 extends your 45 day identification period until July 15, 2020.
- If your exchange began between October 4, 2019 and January 17, 2020, Notice 2020-23 extends your 180 day deadline until July 15, 2020.
Are the COVID-19 extensions automatic or do I need to complete additional paperwork?
You do not need to request or apply for the extensions if your exchange qualifies for the deadline extension. There are no extension forms or paperwork that needs to be completed.
If I decide not to complete my exchange and want to get my money back from the qualified intermediary and pay taxes, do I now have to wait until July 15th?
The current extension granted on April 9, 2020 is automatic. Be sure to check with your tax advisor for their interpretation of how Notice 2020-23 applies to your situation.
Will there be a further extensions granted?
It is unknown. The situation that COVID-19 has caused is unprecedented and prior disaster extensions related to natural disasters such as tornadoes, hurricanes, wildfires, etc.
If additional extensions are granted, will I need to complete additional documents to qualify?
If additional extensions are granted, we hope they would contain specific information relating to qualification requirements. Be sure to speak to your tax advisor about your individual situation before cancelling your exchange (by requesting return of your funds). To sign up for COVID-19 updates, click HERE.
How likely is the IRS to reissue new extensions more in keeping with the traditional 120 day extensions we have seen in the past?
It is not known but it is one of the items real estate organizations requested in the letter sent to the US Treasury Department. Click HERE for a copy of the real estate coalition letter. You can sign up to receive COVID-19 updates HERE.
Will there be any more updates to the extensions granted? What and when will further information by the Treasury/IRS be released?
We, along with our trade association, the Federation of Exchange Accommodators (FEA), have requested additional extensions and clarification of Notice 2020-23. As soon as we know more, we will pass that along. Please be sure to sign up for COVID-19 news HERE so you can stay informed.
Are my 1031 funds held in a separate account?
We open segregated, interest bearing accounts for each 1031 Exchange using the exchanger’s tax identification number.
Where are my funds deposited?
We open segregated accounts only at the large, stable and highly rated banks.
Is my money safe?
Investors and companies often choose IPX1031 for the superior security that we provide for their funds. In addition to only depositing funds in segregated accounts at large, stable and highly rated financial institutions, IPX1031 is bonded and insured by independent insurance companies. Our corporate parent, Fidelity National Financial, issues a 50 million dollar written performance guaranty on every 1031 Exchange. Go to IPX1031’s Safety & Security for Exchangers and Your 1031 Funds Are Safe for more information. It is very important that taxpayers review the security provided for their funds before choosing which company to facilitate their 1031 Exchange.
Should I identify more than one property?
With any exchange, it’s prudent to have a back-up plan and identify multiple properties. There have been many stories of properties falling through or failing to close at the very last minute. Read identification rules HERE.
When is my ID deadline? Is the IRS extending deadlines since I cannot leave my house to look for property? Will I get extra time to identify my replacement properties?
As stated above, Notice 2020-23, provides exchangers with an original ID deadline between April 1st and July 14th an automatic extension to July 15th. Through our trade organization, the FEA, and a coalition of real estate groups, we have asked for additional extensions. We hope these requests will be granted, but there has been no response to date. Be sure to sign up for COVID-19 update HERE.
What if the replacement property I choose does not close for any reason?
If your exchange began April 1st or after, you can re-identify another replacement property prior to July 15, 2020.
How do I find a replacement property if I cannot actually get into the building?
Notice 2020-23 provides that you have until July 15th to identify like-kind replacement property. Depending on what part of the country you are in, appraisers and inspectors may be allowed to go into properties, so they may be able to provide you with information. Virtual tours may be another option.
What if I cannot find a property in the time frame?
As stated previously, if your exchange began between February 16 and May 31, 2020, Notice 2020-23 extends your 45 day identification period until July 15, 2020. If you do not locate a property to identify in the time frame, then you would end up paying the taxes on the applicable gain from the sale of your relinquished property. There is not a tax penalty if you are unable to locate new property to complete your exchange. Speak to your tax advisor about if you can reduce taxes through the use of carry forward losses or delay the payment of taxes due to the coordination between sections 453 and 1031 of the Internal Revenue Code.
Are 1031 Exchanges still allowed?
Yes. Even during this Coronavirus pandemic, 1031 tax deferred Exchanges remain popular with real estate investors. IPX1031 has experts nationwide available by phone or online to answer questions and get your 1031 transaction started. Start your online 1031 Exchange here.
Is a 1031 Exchange a good idea given today’s economy?
Absolutely. A 1031 Exchange is an excellent tool to defer taxes especially in today’s economy. With any investment, you should always check with your tax and legal advisors to determine what is best for your specific situation. Taxpayers should always seek advice from their financial planner, tax attorney and CPA relating to their specific tax and investment goals and situation. Start your online 1031 Exchange here.
Can I do a 1031 Exchange on my primary residence?
Although a 1031 transaction cannot be used on a c