Presidentially Declared Disaster

1031 Tax Relief in Disaster Situations

Posted on | by Tom Gustafson | Leave a Comment on 1031 Tax Relief in Disaster Situations

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.

Qualify for a 1031 Exchange?

1031 Tax Relief for Victims of Hurricane Irene

Posted on | by Tom Gustafson | Leave a Comment on 1031 Tax Relief for Victims of Hurricane Irene

Natural disasters can disrupt the normal course of business and prevent taxpayers from meeting crucial deadlines to file returns, pay taxes and implement tax deferral strategies such as 1031 exchanges. In order to assist taxpayers affected by Hurricane Irene in Vermont, North Carolina, New Jersey, New York State and Puerto Rico, the Internal Revenue Service (IRS) has recently issued a written tax relief confirmation for disaster-impacted counties. Additional states may be included in a later revision of the relief.

The notice posted on the IRS web site page allows taxpayers who live in the covered disaster area and businesses that provide time-sensitive acts in those locations, to postpone the time to file returns, pay taxes and to meet deadlines in 1031 exchanges. Taxpayers who do not live in the specified counties but whose records necessary to meet a deadline listed in Treasury Regulation § 301.7508A-1(c) in the covered disaster area qualify for the tax relief. Additionally, any individual visiting the eligible disaster area who was injured as a result of the disaster qualifies for tax relief.

Special Rules for Section 1031 Like Kind Exchanges

Revenue Procedure 2007-56 Section 17 defines special rules for 1031 like kind exchanges including:

  • Last day of the 45-day identification, 180-day exchange period and the last day of a reverse exchange that fall on or after a Presidentially declared disaster are postponed 120 days or the last day of the extension period authorized by the IRS official announcement.
  • Lender and title insurance company who do not fund or provide required title policy to close a real estate transaction due to the disaster.

If you or your Qualified Intermediary qualifies for disaster relief, contact your CPA to confirm that you are entitled to the extension. Rely only on the official written notice issued by the IRS.

In the past, clients of Atlas 1031 Exchange have been entitled to the extension marking in red “Hurricane Tax Relief” on the first page of their federal tax return. It is important to understand the requirements that you need to meet to qualify and how the extension affects your 1031 exchange time-sensitive dates. Continue to check the IRS web site for updates and revisions.

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1031 Exchange Timeline Extensions

Posted on | by Tom Gustafson | Leave a Comment on 1031 Exchange Timeline Extensions

1031 exchange 45 day identification and 180 day exchange periods can be extended by Presidentially declared disasters, terroristic or Exchangors serving in combat zones.  Extensions apply to both forward and reverse 1031 exchanges.

IRS Written Confirmation

The IRS publishes a notice or IRS News Release defining:

  • Location of disaster;
  • Length of exchange period postponements;
  • Exchangors affected;
  • Acts that have been postponed.

Do not rely on the verbal response of an IRS Agent.  Only IRS extensions in writing can be used to support Exchangor’s actions.

The Robert T. Stafford Disaster Relief and Emergency Assistance Act defines disaster as “any natural catastrophe (including any hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm or drought),or, regardless of cause, any fire, flood, or explosion, in any part of the United States, which in the determination of the President causes damage of sufficient severity and magnitude to warrant major disaster assistance to supplement the efforts and available resources of states, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby.”

Regulation § 301.7508A-1(d)(1) defines the seven types of affected Exchangors while terroristic or military action is defined in Internal Revenue Code § 692(c)(2).

Typically, the exchange periods are extended 120 calendar days but in no event may the postponement extend beyond the Exchangor’s tax return due date including extensions or one year.  Not all Exchangors qualify for an extension.  In all cases, seek the advice of your financial or legal advisor. To view tax relief for disaster situations, go to Item Two of Tax Updates.