David Moore and Tina Colson of Equity Advantage take a look at the 1031 exchange timelines and how they will be affected by COVID-19.
What You Will Learn in This Video
- 1031 Exchange Timeline’s
- What Are the Rules?
- COVID-19 – How will this effect moving forward
David Moore: Hi. David Moore with Equity Advantage, and I’ve got Tina Colson in our firm with me today. And if you are wondering what this is, this is some of our quarantine content. So I just wanted to assure everybody we are six feet apart.
Tina Colson: Thank you.
David Moore: So there we go. You had a question for me, Tina?
Tina Colson: So I do. With the 1031 exchange timelines, what are the time requirements in an exchange? And during our times today that we’re facing, with this quarantine and everything else affecting us, do you feel that there could be an extension in the future? How does this affect everybody moving forward?
David Moore: It’s not a lot of fun, period, I don’t think. This six feet stuff, it’s just tough. Anyway, so I guess you’ve got to look at a few different things, like all my answers. The bottom line is, if you look at 1031, for a delayed exchange, it contains hard, fast rules. 45 and 180 days. If you look at those timelines, I guess the one comment … If we just start off with the 45180 … If you read the fine print of the code, it says 45180 or the due date of the tax return.
So you could have substantially less time if you’re doing an exchange late in the year. If you were unfortunate enough to file a tax return before completing the exchange, you would have torpedoed your exchange. So it’s critical, any time we’re looking at transactions late in the year, that the taxpayer does not file a tax return until they’ve completed the exchange. If the exchange is not going to be completed until after April 15th, historically, you would need to file an extension.
David Moore: Now, we were granted extensions of tax returns through this. This is some of our quarantine content we’re providing right now, for those of you that are tired of watching Netflix, binging. But the thing is, we’re experiencing extensions, and we experienced an extension in the filing for tax returns. Historically, 1031 had never had an extension for any reason, pre-9/11. And since then, we’ve had a variety of them. Typically, any time we’ve got a presidentially-declared national disaster, we’re granted an extension of some sort.
Now, we’re into this mess several weeks now. Well, actually months, depending on where we’re talking about. But this is late March, so everybody’s been dealing with it on a hard-core sense for several weeks now. We in the industry, in the exchange industry, the FEA, Federation Exchange Accommodators, just today filed a request for this. But this is clearly a situation where we, as an industry, are expecting extensions be granted.
But we haven’t seen anything yet, and I don’t know how you can have a situation … Any time we’ve got a hurricane, tornado, flooding, those things. Any time you can document that your exchange was impacted by this disaster, you’ve been granted extensions. We have not seen that yet.
And I don’t know how anybody … You were in the lending business.
Tina Colson: Yes.
David Moore: You’ve got lots of people close to you in the lending business. Things are slowing down, changing. We’ve got title companies talking about recording things. Everything’s getting to a point where we’re potentially looking at major issues there, where even if you wanted to get a deal closed, you couldn’t. So I don’t know how the IRS would not, at some point, acknowledge that and give us word of extensions. We have no idea what they’ll be, what kind of length they’ll be.
And it’s sort of funny. I’ve been doing exchanges for 30 years. The 45-day ID period is ludicrous. It needs to go away. It just puts good people in a bad spot. The 180-day timeline is one of those things where I understand there should be an end to any exchange. And so having a hard end make sense.
Understand reverse exchanges. We’ve got safe harbors, so they’ve got the same 45180, but they’re safe harbors; they’re not absolutes. We’ve just got to structure things entirely differently if we think things are going to work outside those safe harbors. But if we look at a delayed exchange and look historically, presidentially-declared national disasters since 9/11 have been granted. As far as the region, how do you say it’s not the entire United States, at this point? So hopefully we’re going to see something along those lines.
I’ve got brokers that I’ve worked with for many years, and they like the timelines. Why? You know anybody that procrastinates?
Tina Colson: Oh, all the time.
David Moore: All the time. So a lot of times, professionals in the community, they look at it and say, “Gee, if you took away the 45 or the 180, people are just going to wait. Or if it got rid of the 45 and they got the 180, they’re just going to wait til day 175 or something.” Not realistic. So just work to get things done. We are going to get word out as soon as we get any notice on this topic. But timelines, historically, you’ve got the 45180 without a presidentially-declared disaster, you’re not going to get an extension. So it’s really, really important to understand what people’s situations are today.
If you’re going into an exchange and you think you might want some money, a word of advice. A strong word of advice is if you think you want to get money out of the transaction, we can only, as an exchange company, give money per the 1031 G6 rules, which mean that after we’ve gotten your funds, we can only give you money after you’ve acquired all property you have the right to buy. Which means at no time inside the 45 days, and only after the 45th day, after you’ve acquired everything you have the right to buy.
David Moore: So bottom line: If you want money out, get it out at close or when you get to that 45th day, it’s a hard stop. You’ve got to be totally committed at that point. I’m going to complete the exchange or I’d like my money. And that’s something that it’s really a tough spot for people to get in, but it’s something you got to be aware of.
And we’re working as a skeleton crew right now, and if you’ve got questions, even if we don’t … We should have somebody that can answer the question immediately, but if you’ve got questions, send them off to us via email. We’re going to address those, and hopefully, we’ll be able to answer the phone.
Tina Colson: And again, I just want to reiterate with the releasing of the funds, if somebody does want to get out of their exchange or they’re within that 180-day time frame, now that is a requirement by law. That is not, again, something that Equity Advantage has come up with and states that we just can’t release money. That is a law that has been in place, correct?
David Moore: Correct. It’s the 1031 G6 rules. Thank you for clarifying that, because it is something that people act as though it’s our policy. It’s not our company policy, and you have to understand. Your position as an investor might be, “Hey, I don’t care about the exchange. I’m willing to pay the tax.” But it’s not your exchange alone that it impacts. It’s our policies and procedures. .
We cannot release the funds outside the 1031 G6 rules or our policies are not valid, and therefore the exchanges we do are not valid. So it’s critical. Anybody in the exchange business that does this full-time is going to have the same position, and if you’re working with somebody that’s just going to give you the money, it’s not a place you should be doing business. Unfortunately.
Tina Colson: Right. David, thank you so much for your answers. And again, please call us: 503-635-1031. Or just go to our website, 1031exchange.com, and we look forward to talking to you soon.
Just Released: 1031 Exchange Extension Granted!
UPDATE: Since this video has been recorded, Exchangors whose 45-day identification period or 180-day exchange period falls between April 1, 2020 and July 15, 2020 will now have until July 15 to complete these actions!
Currently, exchange deadlines prior to April 1, 2020 are not eligible for this extension. We are constantly monitoring the situation however and will provide additional guidance and clarification as more information is released.
For more information, check out our recent newsletter on the 1031 exchange and COVID-19 here.
1031 Exchange Extension Granted!
Please give us a call if you have questions. We are here for you to answer any questions you may have. Let us help you navigate these through these challenging times. The experts at Equity Advantage are staying on top of every important development. Call us at 503-635-1031 to learn all the details and protect your investments.