As my focus shifts more and more to my real estate investing business, I noticed with interest the recent disaster relief rules implemented by the IRS for all taxpayers who live and work in designated counties in the state of California that have been deemed to have incurred weather disasters. Here’s what caught my eye:
If you live and work in one of these counties, and you were in the middle of a Section 1031 exchange anywhere in the country on or after March 9, 2023, you get a sizeable extension of the time required to complete the other leg of that exchange.
Let’s be clear about that. If you live and work in any one of at least 43 counties in California – including Los Angeles or San Francisco – and you sold an investment property anywhere in the USA on or after March 9, and needed to find a replacement property anywhere in the USA, your 90 or 180 day time limit for identifying and purchasing a replacement property can go out as far as October 16, 2023. That means your 180 days can now be as long as 220 days. This applies in reverse, too. If the first leg of your transaction was a purchase and you need to sell the property you own to complete the reverse exchange – anywhere in the country – you also have the same time extension, as long as the first leg occurred on or after March 6. (Source: First American Exchange Company)
So, you may say, how does that help me?
Well, if you’ve already identified both properties, and both will be all cash deals, you probably don’t. You aren’t concerned about finding the right replacement, finding the right buyer, finding the right loan (you or your buyer), or getting your deal done in the time allowed to effectively defer the profit on the deal.
But if all those things aren’t clearly defined, you might just welcome the extension. The volatility of today’s market for investment capital is all over the map:
- mortgage interest rates are changing daily as interest rates climb, or don’t climb, or might climb,
- lender availability is uncertain, as banks pull in capital for protection after several major bank failures,
- shifting pricing on commercial properties, especially those with certain industry focus,
- stock market reactions causing risk-averse funds to leave for safer havens, and more.
And that doesn’t include anything that might be happening in your life. We’ve got a shopping center in Arizona that has thus far resisted our plans to sell it months ago, preventing redirection of a fair amount of our capital.
So, by all means talk to your tax advisor if you think this might be of value to your finances. There are a few wrinkles that are too involved to cover here, such as the overall limitation tied to tax return filing deadlines.
We don’t have all the answers, but we do have the most important questions. Because after all…
We are Your CFO for Rent.