As a result of the severe winter storms, flooding and mud slides that began in California on January 8, 2023, on January 10, 2023, the IRS issued an initial extension of the 45- and 180-day deadlines for IRC §1031 exchange transactions (outlined in this alert). On February 24, 2023, the IRS further extended those deadlines.

As a result of the February 24, 2023 IRS notice, those who meet the requirements will be given an extended general postponement deadline of October 16, 2023, allowing taxpayers more time to identify a replacement property and complete their 1031 exchange transaction.

Here are key points and frequently asked questions about the extension.

Who is eligible?

• The extensions apply to taxpayers residing in, or whose principal place of business or books and records are located in, Alameda, Alpine, Amador, Butte, Colusa, Contra Costa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Inyo, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Nevada, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Ventura, Yolo, and Yuba counties.
• The extensions permit eligible persons who began an IRC §1031 exchange between November 24, 2022 and January 8, 2023, to extend the 45-day identification period to the later of October 16, 2023 or 120 days after the original 45-day deadline date.
• The extensions permit eligible persons who began an IRC §1031 exchange between July 12, 2022 and January 8, 2023, to extend the 180-day exchange period to the later of October 16, 2023 or 120 days after the original 180-day deadline date.
• A taxpayer may need to extend the time for filing his, her or its 2022 tax return to obtain this benefit.

Which transactions are covered?

• Forward Exchanges. The Relinquished Property was transferred by no later than January 8, 2023.
• Reverse Exchanges. The Exchange Accommodation Titleholder acquired the Replacement Property or the Relinquished Property, as applicable, by no later than January 8, 2023.

Who are eligible taxpayers?

The taxpayer must be one of the following:

• An “Affected Taxpayer.” An “Affected Taxpayer” is:
  • Any individual whose principal residence is located in the Disaster Area
  • Any business entity or sole proprietorship that has its principal place of business located in the Disaster Area
  • Any individual who is a relief worker and is assisting with the Disaster Area or
  • Any individual or business entity whose records are kept in the Disaster Area.
• Any Person Having “Difficulty” In Meeting Deadlines. A person that has difficulty meeting 45- and 180-day deadlines for one of the following reasons (or for a similar reason):
  • The Relinquished Property or Replacement Property is located in the Disaster Area
  • The principal place of business of any party to the transaction (for example, a Qualified Intermediary, Exchange Accommodation Titleholder, transferee, settlement attorney, lender, financial institution, or a title insurance company) is located in the Disaster Area or
  • One of the other reasons listed in Revenue Procedure 2018-58 (including the death of any party to a transaction, failure of a lender to fund the transaction, and refusal of the title insurance company to write a title insurance policy).

What are the new deadlines?

• An Affected Person or a Person Having Difficulty in Meeting Deadlines is entitled to an extension of the 45-day identification deadline and the 180-day exchange deadline as follows:
  • Any deadline that falls on or after January 8, 2023 may be extended to the LATER of:
    • October 16, 2023 or
    • 120 days after the date on which the deadline would have otherwise occurred.
• However, in no case may this deadline be extended beyond (a) the due date (including extensions) of the taxpayer’s 2022 tax return (if the Relinquished Property was transferred or the EAT acquired the Replacement Property in 2022) or 2023 tax return (if the Relinquished Property was transferred or the EAT acquired the Replacement Property in 2023) or (b) 1 year.

What if the Relinquished Property was transferred or the EAT acquired the Replacement Property after January 8, 2023?

• If a Relinquished Property was sold, or a Replacement Property was acquired, after January 8, 2023, and the original 45-day identification deadline falls on or before October 15, 2023, the 45-day identification deadline is extended to October 16, 2023.  Similarly, if the original 180-day exchange deadline falls on or before October 15, 2023, the 180-day exchange deadline is extended to October 16, 2023.
• This extension is only available to Affected Persons. It is not available to Persons Having Difficulty in Meeting Deadlines.

How might all of this work? Here are some examples.

• Example 1. If a Relinquished Property is transferred in a forward exchange on August 1, 2022, then the transaction will have the following deadlines:
  • Identification of Relinquished Property. Without the extension, the 45-day deadline to identify the Replacement Property would be September 15, 2022. This deadline is not affected by the extension, because it does not occur on or after January 8, 2023.
  • Receipt of Replacement Property. Without the extension, the 180-day deadline for the taxpayer to receive the Replacement Property would be January 28, 2023. With the extension, the new deadline is October 16, 2023. The taxpayer may be required to extend his, her or its 2022 tax return to obtain this benefit.
• Example 2. If a Relinquished Property is transferred in a forward exchange on December 27, 2022, then the transaction will have the following deadlines:
  • Identification of Replacement Property. Without the extension, the 45-day deadline to identify the Replacement Property would be February 10, 2023. With the extension, the new deadline is October 16, 2023. (Note that if a taxpayer wants to change his, her or its 45-day identification, he, she or it will need to revoke the prior identification prior to submitting a new identification.)
  • Acquisition of Replacement Property. Without the extension, the 180-day deadline to acquire the Replacement Property would be June 25, 2023. If the taxpayer is able to utilize the full 120-day extension, the new deadline is October 23, 2023. However, if the due date (including extensions) of the taxpayer’s 2022 tax return is earlier than October 23, 2023, then the taxpayer’s deadline to acquire Replacement Property will be the extended due date of the taxpayer’s 2022 tax return.
• Example 3. If a Relinquished Property is transferred in a forward exchange on January 7, 2023, then the transaction will have the following deadlines:
  • Identification of Replacement Property. Without the extension, the 45-day deadline to identify the Replacement Property would be February 21, 2023. With the extension, the new deadline is the latter of (i) June 21, 2023 (120 days after February 21, 2023), and (ii) October 16, 2023.
  • Acquisition of Replacement Property. Without the extension, the 180-day deadline to acquire the Replacement Property would be July 6, 2023. With the extension, the extended identification deadline is the latter of (i) October 16, 2023, and (ii) November 3, 2023 (120 days after July 6, 2023). The taxpayer has until November 3, 2023 to complete its exchange. The taxpayer does not need to extend its 2023 tax return to take advantage of this extension.

What does the State of California say?

• The California Franchise Tax Board conforms to the foregoing extensions.

Although this article covers the basics, there are additional nuances in qualifying for and satisfying the requirements of IRC §1031. For additional information or questions concerning the information covered in this article or any other issues related to IRC §1031, please contact any of the authors or your Greenberg Glusker LLP contact.