Hurricane Helene impacts felt across the Southeast U.S.: Effects on 1031 Exchanges
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As of September 30, 2024, the IRS has issued over 30 disaster postponements due to weather or natural disasters. As the detriment of Hurricane Helene continues to unfold here in the United States, now is the time to review how the federal government provides for extensions to 1031 Exchanges when a Federally Declared Disaster Area is issued - which is anticipated for this situation.
Revenue Procedure 2018-58 cites allowance for deadline extensions for 1031 Exchange transactions when there are federally declared disasters.
The IRS will issue a Notice when this type of relief is available and will post such a notice on their website (https://www.irs.gov/newsroom/tax-relief-in-disaster-situations). A taxpayer must meet the specific terms of the Disaster Relief Notice and the terms as listed in Revenue Procedure 2018-58 to qualify for any extensions.
In the event of a federally declared disaster, an exchangor may be eligible for an extension of the 45 day identification period, the 180 day exchange period, or both. Typically, the disaster relief is available to “affected taxpayers” as defined in an IRS Notice and applied to a 1031 exchange per Rev. Proc. 2018-58, Sections 6 or 17. Relief is also available to other transferors of property who are specifically impacted as defined in Rev. Proc. 2018-58, Section 17.
There are two ways a taxpayer may qualify for these extensions:
The Exchange started on or before the date of the federally declared disaster
The Exchangor is located in the affected area. The IRS does issue notices by county, instead a single issued notice will include all counties that qualify for the extensions and the duration of the tax relief.
Exchangors may still receive extensions even if they are not in the affected area(s). If their relinquished or replacement property is located in the qualifying area; the primary place of business of any party to the transaction is located in the disaster area; or a lender will now not fund the loan due to the disaster.
Eligibility for the disaster extensions does vary on a case by case basis. Your Qualified Intermediary cannot advise you if you qualify or not. It is strongly encouraged that a taxpayer consult with their tax professional about this issue should it apply.
For additional information, please reach out to your tax professional for specific questions or contact the specialists here at Security 1st Exchange for assistance.