Floods, tornadoes, hurricanes, and other natural disasters can have an impact on the implementation of 1031 tax deferred exchanges. The Internal Revenue Service (IRS) provides written tax relief for disaster situations for taxpayers engaged in 1031 exchanges. If the exchange qualifies, the 45 and 180 calendar day time-lines can be extended. While our office was located in Destin, FL from 2003 – 2009, we had multiple experiences with exchange time-line extensions because of hurricanes including Ivan in 2004, Dennis, Katrina and Wilma in 2005, Humberto in 2007, and Gustav in 2008. It is important to have your accountant interpret the IRS notice to determine whether the exchange qualifies for extra time.
IRS Tax Relief in Disaster Situations
The IRS updates a page on their web site that lists the states and counties affected by the flood, tornadoes, hurricanes, and straight line winds. If you are in an exchange and either you, your qualified intermediary or replacement property are located in an impacted county, check the site to confirm whether you are eligible for an extension.
IRS Experience
A written IRS notice is crucial to utilizing a time-line extension. I witnessed a situation when the 1031 replacement property was in the county impacted by a hurricane. There was a lag in the time between when the notice was posted on the IRS web site and the action required. The action was taken based on the verbal response of the IRS agent stating that the extension would affect the exchange. However, it was not granted because of the absence of the written notice of the IRS.
Enlisting help from the experienced Certified Exchange Specialist® allows the property owner to avoid potential risks during 1031 exchanges and defer the capital gains tax successfully.
If you would like know whether you qualify for a 1031 exchange, download the free white paper below or contact our office.
