Helpful 1031 info for disaster affected areas...

During the past couple of years, we've had quite a wave of hurricanes and other natural disasters. In many cases, these disasters make it difficult for people to meet their 1031 exchange deadlines. Happily, the IRS recently issued a ruling called Revenue Procedure 2005-27 to offer guidance on this issue.

In basic terms, if you have begun your 1031 exchanges (either, you've sold your Old Property, or you've bought your New Property in a reverse exchange), you can get extensions of your 45- and 180-Day Deadlines, as long as:

(1) You are an 'Affected Taxpayer' as defined in an IRS News Release or as provided in a Presidential declaration, or;

(2) You have 'difficulty' meeting your deadlines because the Old or New Property is located in the disaster area; the intermediary, closer, lender, or another other party is located in the disaster area; a lender can't fund because of the disaster; the title company can't issue title insurance because of the disaster; and other similar reasons.

Presumably, the IRS will let you know what the new deadlines are. In the past, the IRS has stated in a news release (which can be found on their website) that all tax deadlines (including the 45- and 180-day deadlines) are extended to a certain date a few months into the future.

The ruling is somewhat vague and open to interpretation. Our best interpretation is that if a taxpayer's exchange is significantly impacted by a disaster as specified in an IRS News Release or Presidential declaration, he or she should be able to extend their 1031 deadlines.

However, our advice is also to not push it. The ruling gives the IRS a lot of leeway and ability to say that the ruling does not apply in certain cases. So, if your exchange is only peripherally impacted, do your best to meet your 45- and 180-day deadlines. And, if you need to take advantage of the tax relief, our advice is to minimize your extensions as much as possible.

For instance, if the IRS gives affected taxpayers until March 31, 2006 to meet their 1031 deadlines, and you needed relief from your 180-day deadline because your title company was closed for a few days in October, don't wait until March 31, 2006 to close -- close on your New Property as soon as possible.

http://www.irs.gov/newsroom/article/0,,id=108362,00.html
http://www.irs.gov/newsroom/article/0,,id=147085,00.html
http://www.irs.gov/newsroom/article/0,,id=148203,00.html

If you have any questions, please feel free to call any one of our Experts at 866-694-0204.

--The Experts