Section 1031 of the Internal Revenue Service Code allows a taxpayer to defer recognition of capital gains and related federal income tax liability on the exchange of investment real estate. The capital gains and related federal income tax liability are deferred to the time that the replacement real estate is sold. In order to meet the IRS requirements, the seller must use a qualified intermediary to handle the sale of the property and the purchase of the replacement property. A taxpayer has 45 days from the date of sale to identify the replacement property and 180 days from the date of sale to acquire the replacement property. Many real estate investors have been unable to locate replacement properties due to the Covid-19 crisis.
On April 9, 2020, the IRS issued Notice 2020-23 which extends various Section 1031 time periods. For any Section 1031 45 day identification and 180 day acquisition deadlines that fell on or after April 1, 2020, such deadlines can be extended to July 15, 2020. If either the 45 day or 180 day deadline falls between April 1 and July 15, 2020, such deadline (not both) is extended to July 15, 2020.
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