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The IRS recently issued updates to the Disaster Notices for California that extended the 45-day and 180-day Section 1031 Exchange deadlines for certain qualifying taxpayers. The extensions will allow for qualifying taxpayers to take more time to complete their Section 1031 Exchange, including additional time to complete due diligence and possibly take advantage of lower interest rates later this year. Example: Typically, if you were to close your investment property on December 16, 2022, you would have until January 30, 2023 to identify replacement property and June 14, 2023 to close on your replacement property (45 and 180 days, respectively). With the recent extension, however, you would now have until October 16, 2023 to both identify and close on your replacement property.
Who are Affected Taxpayers?
Affected Taxpayers include, among others, individuals who live and businesses whose principal place of business is located in one of the Covered Disaster Areas, regardless of where the relinquished or replacement property is located. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for relief.
What are the Covered Disaster Areas?
For the disaster proclamation beginning December 27, 2022 (the “December Disaster Date”), the postponement includes: Alameda, Butte, Calaveras, Colusa, Contra Costa, Fresno, Glenn, Humboldt, Los Angeles, Marin, Mendocino, Merced, Monterey, Placer, Sacramento, San Benito, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Siskiyou, Sonoma, Trinity, Tulare, Ventura, and Yolo counties.
For the disaster proclamation beginning January 8, 2023 (the “January Disaster Date” and together with the December Disaster Date, collectively in the singular the “Disaster Date”), the postponement includes Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba counties.
What are the New Deadlines?
Affected Taxpayers have two options:
- General Postponement under Section 6 of Rev. Proc. 2018-58, which postpones any 45-day or 180-day deadline falling on or after the Disaster Date to the General Postponement date of October 16, 2023, or
- Section 17 alternative, available to Affected Taxpayers and other taxpayers who have difficulty meeting the exchange deadlines, only available if the relinquished property was transferred on or before the Disaster Date, and extends any 45-day or 180-day deadline falling on or after the Disaster Date to the longer of 120 days from such deadline or the General Postponement Date.
Although this Article covers the basics of the Section 1031 deadline extension in California, there are additional nuances in qualifying for and satisfying the requirements of Section 1031. It is always best to consult GERSONLAW regarding your specific transaction to determine if the you are eligible for an extension and if so, the new deadline dates.