US Tax Alert

As a result of the 2017 Southern California wildfires, the IRS has issued an extension of the 45- and 180-day deadlines for IRC §1031 exchange transactions. This extension applies both to real estate and personal property assets that are otherwise eligible for IRC § 1031 exchange treatment.

Here are key points about the extension.

Who is eligible?

  • The extensions apply to taxpayers residing in, or whose principal place of business or books and records are located in, Los Angeles, San Diego, Santa Barbara and Ventura counties.
  • The extensions permit eligible persons who began an IRC §1031 exchange between October 20, 2017 and December 4, 2017, to extend the 45-day identification period to the later of April 30, 2018 or 120 days after the original deadline date.
  • The extensions permit eligible persons who began an IRC §1031 exchange between June 7, 2017 and December 4, 2017, to extend the 180-day exchange period to the later of April 30, 2018 or 120 days after the original deadline date.
  • A taxpayer may need to extend the time for filing his, her or its 2017 tax return to obtain this benefit.

What geographical area is affected?

  • The 2017 Southern California Disaster Area consists of the following 4 counties in Southern California: Los Angeles, San Diego, Santa Barbara, and Ventura.

Which transactions are covered?

  • Forward exchanges. The Relinquished Property was transferred by no later than December 4, 2017.
  • Reverse exchanges. The Exchange Accommodation Titleholder acquired the Replacement Property or the Relinquished Property, as applicable, by no later than December 4, 2017.

Who are eligible taxpayers?

The taxpayer must be one of the following:

  • An "Affected Taxpayer." An "Affected Taxpayer" is:
    • Any individual whose principal residence is located in the Disaster Area
    • Any business entity or sole proprietorship that has its principal place of business located in the Disaster Area
    • Any individual who is a relief worker and is assisting with the Disaster Area or
    • Any individual or business entity whose records are kept in the Disaster Area.
  • Any Person Having "Difficulty" In Meeting Deadlines. A person has "difficulty" meeting 45- and 180-day deadlines due to one of the following reasons:
    • The Relinquished Property or Replacement Property is located in the Disaster Area
    • The principal place of business of any party to the transaction (for example, a Qualified Intermediary, Exchange Accommodation Titleholder, transferee, settlement attorney, lender, financial institution, or a title insurance company) is located in the Disaster Area or
    • One of the other reasons listed in Revenue Procedure 2007-56 (including the death of any party to a transaction, failure of a lender to fund the transaction, and refusal of the title insurance company to write a title insurance policy).

What are the new deadlines?

  • An Affected Person or a Person Having Difficulty In Meeting Deadlines is entitled to an extension of the 45-day identification deadline and the 180-day exchange deadline as follows:
    • Any deadline that falls on or after Monday, December 4, 2017 may be extended to the LATER of:
      • April 30, 2018 or
      • 120 days after the date on which the deadline would have otherwise occurred.
  • However, in no case may this deadline be extended beyond (a) the due date (including extensions) of the taxpayer's 2017 tax return or (b) 1 year.

How might all of this work? Here are some examples.

  • Example 1. If a Relinquished Property is transferred on August 23, 2017, then the transaction will have the following deadlines:
    • Identification of Relinquished Property. Without the extension, the 45-day deadline to identify the Replacement Property would be October 7, 2017. This deadline is not affected by the extension, because it does not occur on or after December 4, 2017.
    • Receipt of Replacement Property. Without the extension, the 180-day deadline for the taxpayer to receive the Replacement Property would be February 19, 2018. With the extension, the new deadline is June 19, 2018. The taxpayer may be required to extend his, her or its 2017 tax return to obtain this benefit.
  • Example 2. If a Relinquished Property is transferred in a forward exchange on November 27, 2017, then the transaction will have the following deadlines:
    • Identification of Replacement Property. Without the extension, the 45-day deadline to identify the Replacement Property would be January 11, 2018. With the extension, the new deadline is May 11, 2018. (Note that if a taxpayer wants to change his, her or its 45-day identification, he, she or it will need to revoke the prior identification prior to submitting a new identification.)
    • Acquisition of Replacement Property. Without the extension, the 180-day deadline to acquire the Replacement Property would be May 26, 2018. With the extension, the new deadline is September 23, 2018. The taxpayer may be required to extend his, her or its 2017 tax return to obtain this benefit.

What does the State of California say?

  • The California Franchise Tax Board conforms to the foregoing extensions.