Articles

Hurricane Relief for Property Owners Engaged in 1031 Exchanges by Barry M. Brant, CPA


Posted on September 18, 2017 by Barry Brant

Besides extending the due dates for certain 2016 tax returns and payments, the IRS is giving taxpayers who were affected by  Hurricanes Irma and Harvey  and who were in the middle of a Section 1031 tax-deferred exchange as of September 10, 2017, (August 23, 2017, in the case of Harvey) extra time to identify and/or close on replacement property.

Irma-affected taxpayers who sold property prior to September 11, 2017; entered into a Section 1031 tax-deferred exchange simultaneous with the sale of their property; and not yet passed the normal 45 day period to identify replacement property as of September 4, 2017, (for sales occurring prior to September 4, 2017) will have until the later of January 31, 2018, or 165 days from the date their relinquished property was sold to identify possible replacement properties.

Likewise, instead of the normal 180-day period to close on identified replacement property, affected taxpayers will have until the later of January 31, 2018, or 300 days from the date their relinquished property was sold to close on the purchase of replacement property. In no event can the postponement extend beyond the due date of the taxpayer’s tax return for 2017, including regular extensions.

Affected taxpayers for Hurricane Irma include any taxpayer who sold property and was engaged in a Section 1031 exchange on or before September 10, 2017, who resides in or has a principal place of business in Florida. The IRS extension also applies to nonresidents of Florida engaged in a 1031 exchange on or before September 10, 2017, who have difficulty meeting the normal exchange deadlines (45 and 180 days from date of sale) due to one of the following disaster-related reasons:

  1. The replacement property is in the covered disaster area or the relinquished property (in the case of a reverse tax-deferred exchange) is in the covered disaster area;
  2. The principal place of business of any party to the transaction (e.g. qualified intermediary, exchange accommodation titleholder, settlement agent, lender, title insurer) is located in the covered disaster area;
  3. Any party to the transaction is killed, injured or missing as a result of the disaster;
  4. A document relating to the exchange or a relevant closing document is destroyed, damaged or lost due to the covered disaster;
  5. A lender decides not to fund because of the disaster or because of flood, disaster or other hazard insurance not being available due to the disaster; or
  6. A title insurance company is unable to provide the required title insurance policy necessary to close due to the disaster.

In the event that a replacement property identified before the disaster is substantially damaged by the disaster, alternative replacement property may be identified by the later of January 31, 2018, or 165 days from the date the relinquished property was sold.

Similar relief to the above is also available for reverse tax-deferred exchanges.

Moreover, disaster relief is optional. We recommend that affected taxpayers immediately advise their qualified intermediaries that they are eligible for disaster relief, and that their exchange deadlines have been extended.

The rules relating to Section 1031 tax-deferred exchanges are complicated enough without a hurricane. The professional advisors and accountants at Berkowitz Pollack Brant have extensive experience with 1031 exchanges of all types, including those affected by disasters like Irma. There are many planning opportunities after disasters like Irma, so please be sure to consult with us to take advantage of our expertise.

 

About the Author: Barry M. Brant, CPA, is director of Tax, Consulting and International Services with Berkowitz Pollack Brant, where he leads the firm’s private client group and provides guidance on complex tax matters, including multi-national holdings, cross-border treaties and wealth preservation and protection.  He can be reached in the CPA firm’s Miami office at 305-379-7000, or via email at info@bpbcpa.com.