IRS Extends Tax Deadlines for Opportunity Zone, 1031 Exchange Investors

Federal Guidance Provides Relief for Buyers, Sellers With Deals Delayed by Cororavirus Pandemic

Real estate groups lobbied the U.S. Treasury to extend tax deadlines for certain property sales. (Department of the Treasury)Real estate groups lobbied the U.S. Treasury to extend tax deadlines for certain property sales. (Department of the Treasury)

Commercial property investors worried about meeting federal tax deadlines on “opportunity zone” and so-called 1031 exchange sale transactions during the coronavirus pandemic won some additional time to submit their paperwork.

The Internal Revenue Service issued new guidance Thursday extending the tax filing deadline of all individuals and businesses facing deadlines between April 1 and July 15 to a filing date of July 15. The protections apply to entities including “trusts, estates, corporations and other non-corporate” tax filers and ensure no interest, late-filing or late-payment penalties are due. The announcement comes after the IRS previously extended the April 15 income tax filing deadline until July 15.

The National Association of Realtors and dozens of other real estate groups and associations lobbied the IRS and Treasury Department to extend the deadlines as a form of disaster relief during the pandemic, which has disrupted property appraisals, property inspections and other key parts of the sale process. According to the new guidance, the IRS provides “additional time to perform certain time-sensitive actions,” including deadlines involving so-called 1031 “like-kind” exchange and opportunity zone transactions, according to real estate groups and tax attorneys.

The 1031 tax strategy allows investors to defer paying capital gains taxes on the sale of investment properties as long as they enter into a sale for another “like-kind” asset with the profit from the first property sale within 45 days and close the transaction within 180 days. If either the 45-day sale agreement or 180-day closing deadline for the transaction was scheduled to expire between April 1 and July 15 this year, investors now have until July 15 to complete the transaction under the IRS action under the new guidance.

Similarly, any investors who sold an asset planning to roll the capital gains into an opportunity fund and the 180-day deadline to make the purchase falls between April 1 and July 15 this year, he or she can make the investment as late as July 15. Under the 2017 Tax Cuts and Jobs Act, investors receive long-term tax benefits for new development projects and businesses within federally designated opportunity zones in low-income urban and rural areas.

National Association of Realtors President Vince Malta praised the federal action, saying the deadline extensions are expected to help protect millions of U.S. real estate sales and leasing jobs.

“This pandemic left small businesses and independent contractors particularly vulnerable,” Malta said in a statement. “The deadlines extended Thursday will provide immediate relief from some of the disruptions caused by COVID-19.”

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