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.”
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