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Atlanta Deferred Exchange

Are there extensions for my 1031 transaction in the event of a natural disaster?

Q: A hurricane recently came through my state, and damage to properties is still being assessed.  Will the IRS grant me any extensions to meet the 45-day ID deadline for my 1031?

A: Possibly.  If the President has declared your county a federal disaster area and the IRS has issued a news release confirming that affected taxpayers will be eligible for relief in the disaster situation, then you will be allowed an extension. Section 17 of Revenue Procedure 2007-56 specifically addresses what relief is provided.  In short, it allows that deadlines (ID or acquisition) "are postponed by 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance announcing tax relief for victims of the specific Presidentially declared disaster, whichever is later. However, in no event may a postponement period extend beyond: (a) the due date (including extensions) of the taxpayer’s tax return for the year of the transfer." (Section 17.02)   In the case of either a standard and reverse exchange that is already in process, the IRS allows the taxpayer to add the additional time  onto the last day of the applicable 45-day identification period or 180-day exchange period so long as the relinquished property had been sold on or before the date of the declared disaster. (For a reverse exchange, ownership must have already been transferred to the Accommodation Titleholder (AT) on or before the disaster).

In order to be granted an extension, the "affected taxpayer" must show that they are having trouble satisfying the 45-day or 180-day deadlines due to one of the following reasons:

  • The relinquished or replacement property is located in the disaster area;
  • The principal place of business for any party involved the transaction is in the covered disaster area;
  • Any party to the transaction is killed, injured, or missing as a result of the disaster;
  • An exchange document or other important land document is destroyed, damaged or lost as a result of the disaster;
  • A lender decides-either  permanently or temporarily- not to fund the loan due to the disaster or inability to obtain disaster, flood or hazard insurance; or
  • A title company cannot provide title insurance due to the disaster.

The same extension may also be applied to a potential replacement property that has already been identified prior to the disaster, but is substantially damaged. (Same for the replacement property already transferred in a reverse exchange.)

One last caveat: relief is not automatically given when the President declares a federal disaster. In order for taxpayers to be eligible for relief, the IRS must have also issued a news release or other notice specifying the event and area covered.  These are posted on the IRS website page . The most recent example is Hurricane Debby which affected numerous counties in Florida in June, 2012. (See IRS news release on this event.)