1031 exchanges enable you to reduce or defer taxes on the sale of business or investment real estate. If you want to sell one 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 1031 exchanges is typically inflexible. Once you sell your relinquished property, the clock starts ticking, and it stops (meaning the new property must have been purchased) at midnight on the 180th calendar day after the day of sale.
When is the 1031 exchange timeline shorter than 180 days?
This window can be shortened if your tax deadline comes before the 180th day. In this case, the 1031 exchange deadline falls on the day your tax return is due. We’ve written before about how 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?
There’s only one circumstance in which a 1031 exchange deadline may be extended beyond the normal 180-day window: when the IRS announces tax relief for disaster victims.
Following the devastation wrought by Hurricane Ian in late September, the IRS granted tax relief to individuals and businesses in Florida, North Carolina and South Carolina. For these taxpayers, some tax deadlines that would have fallen between the disaster date and February 15th, 2023, have been extended to February 15th — and these include 1031 exchange deadlines.
(It’s worth noting that the disaster date varies by state, and more states could still be added to the IRS’s list. Please refer to the IRS webpage for Hurricane Ian for the latest information.)
Similar extensions were granted this year to victims of Hurricane Fiona, as well as to those affected by Alaska’s severe storms. If you believe you may qualify for relief, visit the IRS website for more information.
What can we help you exchange?
At JTC Americas, we’ve put together an industry-leading track record of 1031 success, across tens of thousands of transactions and more than 25 years in the business. Our general counsel has deep expertise in all 1031 exchange structures. And we’ve built a cutting-edge administration platform, called eSTAC®, from the ground up to maximize your transaction security and transparency.
If you’re considering a real estate exchange, you’ve come to the right place. Schedule a free consultation (with no obligation) by clicking below!