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by Adam Clardy and Justin Herp
Following the impacts of Hurricane Helene on the Southeastern United States, the Internal Revenue Service (IRS) has provided targeted tax relief for certain affected individuals and businesses in the region. The relief automatically extends various tax deadlines to May 1, 2025, for taxpayers that live or operate a business in any of the following areas:
The IRS relief generally postpones certain federal income tax filing and estimated payment deadlines, among others. Notably, the relief includes significant deadline extensions for parties that are in the process of transacting a Section 1031 exchange.
Section 1031 exchanges are common, tax-favorable transactions that allow real estate investors to defer paying capital gains taxes when selling or swapping investment property.
In order for these real estate investment transactions to qualify as non-taxable events, specific timing requirements must be met. Parties to a Section 1031 exchange must:
These deadlines are strict and can be difficult to meet even in routine circumstances, which is why the extension offered by the IRS relief provides a significant opportunity for real estate investors located in areas affected by Hurricane Helene.
Specifically, the relief extends both the 45-day identification period deadline and 180-day exchange period deadline to May 1, 2025, if the original deadlines fell on or after the “disaster date.” The disaster dates for each state are:
Again, “affected taxpayers” that qualify for this extension include individuals that live in and businesses with their principal location in the applicable states or counties described above, and importantly, affected taxpayers qualify for this extension regardless of where the original and replacement Section 1031 exchange properties are located.
In addition to the general postponement for affected taxpayers, a party to a Section 1031 exchange that is located outside of the disaster area may qualify for this extension if they have difficulty meeting the 45 or 180-day deadlines due to Hurricane Helene. Examples of difficulties include the Section 1031 exchange property being located in a covered disaster area, a party to the transaction being critically injured or missing as a result of the disaster, or a lender deciding not to fund a real estate closing due to the disaster. This alternative to the general postponement for affected taxpayers is intended to expand the categories of taxpayers that qualify for relief. However, this alternative is only available if the original property was transferred on or before the date of the federally declared disaster.
Therefore, affected taxpayers should rely on the general postponement relief in which the 45 and 180-day deadlines are extended to May 1, 2025, so long as the original deadlines fell on or after the disaster dates specified above. Considering the much stricter eligibility requirements, if you are a taxpayer located outside of the disaster area and believe that you qualify for the alternative relief, you should consult with a trusted tax professional.
While this article is focused on the Section 1031 timeline extensions as a result of Hurricane Helene, the IRS has granted similar relief to those impacted by Hurricane Debby. While the mechanics of the postponements for the 45-day and 180-day timelines are similar to those described for Hurricane Helene, the Hurricane Debby relief generally applies to deadlines originally falling between August 1 and August 5, 2024 (depending on the taxpayer’s location) and extends those to February 3, 2025. If you are located in an area impacted by Hurricane Debby, please consult your tax adviser to discuss whether Hurricane Debby relief may apply to your Section 1031 exchange timing requirements for those initial deadlines falling between early August 2024 and late September 2024.
Section 1031 exchanges can be difficult to execute, and our trusted tax professionals at Elliott Davis can help you or your business navigate the strict requirements and optimize your tax benefits. Real estate investors living or operating in the federally declared disaster zones have a significant opportunity to capitalize on these extended Section 1031 exchange windows. If you need help determining whether you or your business qualifies for the Hurricane Helene extensions, or if you need help executing a Section 1031 exchange, please contact us.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
