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IRS Extends Deadlines For 1031, Opportunity Zone Investors

Investors who have like-kind exchange or opportunity zone deadlines between April 1 and July 15 now have a little more time to close their deals.

The IRS issued new guidance Thursday night that granted all taxpayers, including “trusts, estates, corporations and other non-corporate tax filers” a filing extension until July 15.

The National Association of Realtors told its members the decision benefits investors who are involved in 1031 exchanges or opportunity zone investments. With 1031 exchanges, investors who have to either identify or close on a property between April 1 and July 15 now have until July 15. 

Although many experts called for the IRS to extend these deadlines, what the agency released Thursday night was met with more confusion than applause. It doesn't address like-kind exchanges or opportunity zone investments specifically, but tax experts agreed they are covered under the broadening of the extension.

“Lots of really smart and really knowledgable people are just scratching their heads on this," said Suzanne Goldstein Baker, the general counsel of Investment Property Exchange Services Inc.

"It's different because it's broader, because it covers a lot of ground," but the guidance does not address 1031 exchange provisions specifically, said Baker, who is the co-chair of the government relations committee of the Federation of Exchange Accommodators. “It's mind-numbing."

1031 like-kind exchanges allow real estate investors to sell one asset — from condominiums to warehouses to office buildings — identify a similarly valued property to buy with the proceeds within 45 days and close on it within 180 days. In doing so, those investors can avoid paying any capital gains taxes on the sale.

Under the new IRS guidance, the 45-day deadline and the 180-day deadline could be extended out to July 15, assuming either of those dates falls between April 1 and July 15.

But if an investor now has until July 15 to identify the property, the original 180-day closing date would likely remain since it falls outside the affected date ranges, Baker said. 

Numerous prominent commercial real estate organizations — including the Associated General Contractors of America, The Real Estate Roundtable, the Building Owners and Managers Association, the National Multifamily Housing Council, the International Council of Shopping Centers, NAIOP and NAREIT — recently petitioned U.S. Treasury Secretary Steven Mnuchin to extend the deadlines by which investors can purchase replacement properties for recent sales by adding 120 days to both deadlines.

The IRS has allowed similar delays in the past through disaster declarations in certain geographic locations that have experienced natural disasters or emergencies.

Calls to the IRS were not returned as of press time. It was unclear if the IRS was considering other specific coronavirus relief for like-kind exchanges or if the new guidance would be the extent of it.

NAR spokesperson Wesley Shaw said the organization doesn't expect any further immediate IRS guidance on like-kind exchanges.

"If we are approaching July 15 and it appears that exchanges can't be completed because of then-current conditions, work might begin again on extension," Shaw said in an email.

Greenberg Glusker Fields Claman & Machtinger partner Warren "Skip" Kessler said he was disappointed by the IRS actions. Kessler represents real estate firms and owners, including those in 1031 exchange investments.

"In the past, the Section 1031 extensions were 120 days and even longer in certain circumstances. Acquiring commercial real estate is a complex process and often results in a decision not to proceed after several months of effort. Further, financing in the best of times is challenging and time-consuming," Kessler wrote in an email.

"Add to the usual concerns, that pricing is uncertain when even Fortune 50 companies are not paying their rent and many existing tenants will close their doors, I would not be surprised if the real estate lobbied for longer time periods for 1031 extensions and believe it is appropriate to do so." 

Nonetheless, NAR officials hailed the IRS move.

“During recent weeks, NAR strongly advocated for tax payment deadline extensions — including for 1031-like-kind exchanges and Opportunity Zone investments — as this pandemic left small businesses and independent contractors particularly vulnerable,” NAR President Vince Malta said in a release. “NAR’s federal advocacy team in Washington has kept in constant contact with the IRS and Treasury Department since this crisis began, and the deadlines extended Thursday will provide immediate relief from some of the disruptions caused by COVID-19.”

Despite the confusion, Baker said, the move does provide some relief to those under the gun to make property purchases.

“Frankly, the IRS doesn't have to do anything,” Baker said. “[Investors] may not have the three-tiered wedding cake with a cherry on top, but they have something more than they had yesterday.”