Often times, especially in the current "low-inventory" real estate environment we are experiencing, selling your property with the hopes of completing a 1031 Exchange can be particularly stressful because of the 45 day identification deadline. If you have been considering a 1031 Exchange but have held back due to these deadlines now may be a fantastic opportunity for you.
If you are a resident of or have your principal place of business in California you may be considered an “affected taxpayer” that is eligible to significantly extend the 1031 Exchange deadline. Most counties in California were affected by the 2022 and 2023 winter storms.
If you are an "affected taxpayer" deadlines are now extended until October 16, 2023. Typically, if you were to close your investment property on April 1st, you would have until May 16th to identify property and September 28th to close (45 and 180 days respectively). With this recent extension however, you will now have until October 16th to both identify AND close your Replacement Property.
This extension allows clients doing 1031 Exchanges to take more time to do the due diligence on properties that they intend to purchase and potentially take advantage of lower interest rates, if rates start to decrease later in the year. Instead of rushing to find properties, right now you have a lot more time to make that decision.
A 1031 Exchange allows investors to sell investment property and use all of the proceeds to purchase new investment property while deferring taxes associated with the sale. To qualify as an exchange, the Relinquished and Replacement properties must be qualified "like-kind" properties and the transaction must be properly structured as an exchange. Most real property qualifies as "like-kind" - as long as it is real property that has been and will be held for productive use in the investor's trade or business or for investment. For example, did you know that you might even qualify for a 1031 exchange in Napa if you have a mixed-use property with your primary residence located on vineyards or acreage? Land held for appreciation generally qualifies so if the land is not producing income for you you could potentially sell the land and invest in property that produces income under section 1031 of the tax code.
There are many advantages to structuring your transaction as a 1031 Exchange:
As always, exchangers should speak with their tax advisors to determine if they are eligible for an extension and if so, what their new 1031 exchange deadline dates are. If you need a referral for a great 1031 exchange partner referral don't hesitate to contact me.