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When can the 1031 Exchange Timeline be Extended? Hint: It Just Happened.

18th Oct 2022

1031 exchanges enable taxpayers to reduce or defer taxes on the sale of business or investment real estate. If you want to sell a business or investment property (the “relinquished property”) and purchase a “like-kind” replacement property, structuring these two transactions as a 1031 exchange can enable you to defer capital gains tax and depreciation recapture tax.

The timeline for a forward exchange is typically inflexible. Once you sell your relinquished property, the clock starts ticking, and the exchange must be completed by midnight on the 180th calendar day after the date of sale.

When is the 1031 exchange timeline shorter than 180 days?

This window can be shortened if your tax filing date comes before the 180th day. In this case, the 1031 exchange deadline falls on the date your tax return is due. You can file for an extension on your taxes to maximize your replacement period, but this will only extend the 1031 deadline to the 180th day — no further.

When can the 1031 exchange deadline be extended past 180 days?

Rev. Proc. 2018-58 allows for the postponement of certain “time-sensitive acts” (including 1031) for “individuals serving in the Armed Forces of the United States or serving in support of such Armed Forces in a combat zone or serving with respect to a contingency operation,” as well as “taxpayers affected by a federally declared disaster or a terroristic or military action.”

The IRS release goes into further detail about the specific definitions that apply for qualification under this revenue procedure, but the section of interest for many taxpayers is the one relating to affected taxpayers in a federally-declared disaster area:

If an IRS News Release or other guidance is issued with respect to a specific federally declared disaster and authorizes postponement of acts in this revenue procedure, affected taxpayers may use the postponement

If you want to know whether you qualify and how long you may have to complete your exchange, consult with your tax and legal experts, as there are many specifics to the revenue procedure and your individual situation may or may not qualify. JTC is ready to work with our clients to adjust to any changes that may arise in the course of an exchange.

To learn more about 1031 and the benefits of working with JTC, read our 1031 Exchange Guide.

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