There couldn’t be a better time to be contemplating a 1031 Exchange. If you’re like me, a San Diego transplant from the East Coast, you appreciate a good storm but headed to San Diego for the nicer weather. As owners' rain usually spotlights deferred maintenance or unknown issues. It also, as we prep a 12,000 square foot lot, delays projects and keeps contractors “waiting for the nicer weather”. But this year the storms have given us something to look forward to as property investors: delayed tax filings, specifically in regards to 1031 exchanges. I have been contemplating selling our 5-plex but the stress of a 45 day exchange can be daunting, but that stress has just been relieved by the IRS (this may go on record as the nicest thing I ever write about them…) and truly opens our options.
Why did this happen?
The inability to file forms (extensions past the filing deadline) electronically has proven burdensome to the IRS and inconvenient for the taxpayer, especially for those in areas where there has been a federally declared disaster. Severe weather can dramatically upend someone's life. The delayed filing window is going to make dealing with these circumstances a much easier process. Following the disaster declaration issued by the Federal Emergency Management Agency, individuals and households affected by severe winter storms, flooding, landslides, and mudslides that reside in San Diego and other cities now qualify under disaster relief section 7508.
What does it mean?
For San Diego taxpayers considered to be affected, the postponement of time to file returns, pay taxes and perform other time-sensitive acts has been delayed until October 16, 2023. Treas. Reg. § 301.7508A-1(d)(1), to include individuals who live, and businesses (including tax-exempt organizations) whose principal place of business is located in the covered disaster area will qualify for the relief. Another benefit is you do not have to ask, the IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. The IRS issued updated disaster declarations for parts of California eliminating the requirement for the affected taxpayers to file extension requests giving taxpayers until October 16, 2023 to file their returns and pay their estimated taxes.
How should I act?
If you were contemplating selling a property but don’t want to stress about your exchange then you have had a door open for you. You’ve been given a larger window to find your up-leg and can now take advantage of the extra time. If you’d like to discuss selling your property please do not hesitate to reach out. We see a lot of purchase agreements hinge on the seller finding their next investment but with the tax relief sellers can get a premium without delaying the sale. If you’d like more information please visit the IRS.GOV site for specifics regarding your situation. We always recommend reaching out to tax professionals before making a decision regarding your 1031 exchange.
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