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1031 Exchange Extension: Everything You Need To Know

November 17, 2023

Meeting the strict IRS deadlines can be challenging for investors under certain unfavorable conditions such as a natural disaster. In such cases, the IRS may issue an extension to provide investors additional time to complete the exchange.

For a successful extension, you must be eligible and follow the specified steps. Hence, it’s best to consult with an experienced Qualified Intermediary (QI) for professional guidance to stay compliant.

With over 30 years of experience, our licensed CPA professionals at Universal Pacific 1031 Exchange are experts at facilitating smooth 1031 exchange transactions. Schedule a free consultation with us to discuss your extension request and guide you through the process. 

In this article, you’ll learn how a 1031 exchange timeline extension works, who is eligible for an extension, how to apply, and pro tips for a successful application.

How Does the 1031 Exchange Timeline Work?

How Does the 1031 Exchange Timeline Work?

The Internal Revenue Service (IRS) stipulates a strict timeline for a 1031 exchange. You have to identify potential replacement properties within 45 days after the sale of the relinquished property. Also, you have a total of 180 days to secure the replacement property and complete the entire exchange.

The 180-day exchange deadline may even be shorter if your tax deadline comes before the 180th day. In such a case, the exchange deadline becomes your tax return due date.

Who is Eligible For a Time Extension?

As stated in the Revenue Procedure 2018-58, you may be eligible for an extension of the 45-day and 180-day deadline if your exchange is affected by a federally declared disaster. Typically, the IRS issues a statement to indicate the affected taxpayers according to the disaster-affected areas. You can find information regarding the affected areas for each disaster on the IRS tax relief page.

Who is Eligible For a Time Extension?

According to the Internal Revenue Code, affected taxpayers may qualify for an extension if they have difficulty meeting the 45-day or 180-day deadline due to any of the following conditions:

  • Any party to the exchange sustains injuries, is missing, or dies because of the disaster.
  • Any party to the exchange has their principal place of business within the covered disaster area.
  • A document or record relevant to the transactions is lost or damaged due to the disaster.
  • The relinquished or replacement property is within the disaster affected area.
  • A financing source, such as a lender, is affected or withdraws funding for the exchange due to the federally declared disaster.
  • Inability to obtain the necessary title insurance policy for closing the deal due to the declared disaster.
  • Any party to the exchange is a relief worker with a recognized charity or government organization providing assistance in the disaster areas.

Real-life Examples of 1031 Time Extension

Real-life Examples of 1031 Time Extension

On January 10, 2023, the IRS announced tax relief for taxpayers who were affected by the dreaded flooding, winter storms, and mudslides in California. According to the IRS statement, the deadline for filing tax returns and making tax payments was postponed to October 16, 2023. The general postponement date was updated to November 16, 2023.

The covered disaster area eligible for disaster relief include residents of Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, 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, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba counties.

In the context of 1031 exchanges, the extensions apply to investors who initiated a 1031 exchange between November 24, 2022, to January 8, 2023. The new exchange deadline becomes whichever date that is later between October 16 2023 and 120 days from the initial exchange deadline.

How to Apply for 1031 Exchange Timeline Extension

If you live within the disaster affected area, you don’t need to apply as the IRS automatically identifies affected taxpayers and apply the tax relief to them. However, you may need to call the IRS disaster hotline at 866-562-5227 if you reside outside the covered area to request relief.

Expert Tips For Obtaining a 1031 Exchange Extension

Expert Tips For Obtaining a 1031 Exchange Extension

  1. Seek professional guidance. Industry professionals such as tax advisors and QIs may help you figure out how you can maximize time and speed up the process to stay compliant and enjoy the benefits of a tax-deferred exchange.
  2. Provide relevant proofs and documents if you have any.
  3. Submit the request via the specified means.
  4. Providing accurate information will help build credibility and trust. So, be honest and transparent.
  5. Keep a detailed record of all transactions and communications, including dates and times of events.
  6. Consider a reverse exchange. A reverse exchange allows you to acquire the replacement property before selling the relinquished property. That way, you can identify the replacement property even before you initiate the exchange so you can have more time to complete the transactions.

Bottom Line

If you’re a victim of a federally declared disaster in the United States, the IRS may grant you additional time to complete your tax-deferred exchange. Due to the strict nature of the deadlines, it’s important to make sure you adhere to the extended timeframe to maintain the tax deferral status of your transactions.

It’s recommended to consult with an experienced qualified intermediary for expert guidance throughout the process. At Universal Pacific 1031 Exchange, our experts are always available to discuss your situation and help ensure a successful exchange for you. Contact us today to schedule a free consultation or start an exchange.

About The Author

Michael Bergman, CPA
Michael Bergman is a California licensed CPA and Real Estate Broker with over 32 years of experience in commercial real estate. Specializing in 1031 tax-deferred exchanges and financial oversight, his expertise is invaluable for complex real estate transactions. Michael’s unique blend of financial acumen and real estate knowledge positions him as a trusted advisor in the industry, offering sound advice and strategic insights for successful property management and investment.

Don’t let taxes hinder your property investment decisions. Connect with us today for a free, no-obligation 1031 exchange consultation. Let us help you navigate the process with ease.