1031 Exchange Deadline Extensions for Natural Disasters

While the IRC Section 1031 deadlines must be strictly followed, there may be some extensions in the event of natural disasters.  Under Rev. Proc. 2007-56, extensions of the 45-day Identification and 180 day exchange deadlines are provided to eligible investors affected by federally declared disasters, “acts of terror,” and military actions.

When relief is available, the IRS generally issues a notice or other guidance and posts it on the IRS website searchable under “Disaster Relief.” Investors will also be able to find additional resources for help during a disaster event.

To be eligible for an extension, you must meet both:

  • The terms of the specific Notice issued for the disaster relief for which you believe you may qualify, AND:
  • The terms of Rev. Proc. 2007-56.

If you may be affected, it’s important to check the IRS website (above link) for modifications to the Notices after initial publication, such as inclusion of additional affected counties.

Important information regarding Rev. Proc. 2007-56

Rev. Proc. 2007-56 will extend the deadlines by the later of

  • 120 days; OR
  • the date listed in the IRS Notice; BUT
  • the extension may not go beyond the due date for filing the tax return for the year of the transfer (§17.02(1)).

Rev. Proc. 2007-56 applies to an Exchanger:

  • If in a forward exchange, the Exchanger has sold the first Relinquished Property, OR in a reverse exchange, the EAT has taken title to property on or before the date of the Federally declared disaster (§17.02(2)(a)); AND
  • there is a subsequent Notice or other guidance published by the IRS (FEMA notices and Presidential Declarations don’t have any effect unless the IRS has also issued guidance) granting extensions pursuant to the Rev. Proc. (§17.01); AND
  • the Exchanger is an “affected person” as defined in the IRS Notice (§17.02(2)(b)(i))-Usually defined as having the primary residence or principal place of business in the disaster zone OR the Exchanger has difficulty meeting the 45-day and 180-day deadlines because of the disaster, for the any of the following or similar reasons:
  • The Relinquished Property or the Replacement Property is located in the disaster zone (§17.02(2)(b)(ii)(A));
  • The principal place of business of any party to the transaction is located in the disaster zone (§17.02(2)(b)(ii)(B));
  • A party to the transaction is killed, injured or missing due to the disaster (§17.02(2)(b)(ii)(C));
  • A necessary document relevant to the exchange or relevant land record is destroyed, damaged or lost due to the disaster (§17.02(2)(b)(ii)(D));
  • A lender won’t fund because of the disaster (§17.02(2)(b)(ii)(E)); OR
  • A Title insurance policy cannot be issued due to the disaster (§17.02(2)(b)(ii)(F))
  • Only the deadlines that fall on or after the date of the Federally declared disaster will be extended.
    • Generally, if the identification period has not expired by the date of the disaster, then the extensions may apply to both the 45-day identification period AND the 180-day exchange period. (§17.02(1))
    • If the identification period has expired by the date of the disaster, then only the exchange period deadline will be extended. (§17.02(1)) UNLESS
    • the disaster occurred after the 45th day AND the identified property was substantially damaged, THEN you may be able to retroactively extend the identification period and also extend the exchange period. (§17.03)

Because there are so many variables to qualifying for disaster relief, contact your Qualified Intermediary immediately if either your relinquished or replacement property resides in a federally designated disaster area.  As always, consult your tax advisor and legal counsel on this and other options you may have when a disaster strikes.