1031 Exchange Disrupted by Hurricane

[Jackie F.]

Hello BP,

My 45 day selection period was disrupted by hurricane Irma.  Furthermore, the property I was getting ready to close on last week may fail re-inspection in which case I may have to move forward with another property.  This means, I may need more time beyond the 45 days.  All the properties I identified are no longer available.

The obvious solution is to use the 180 days for all hurricane repairs to be completed prior to closing etc etc.  I know this, but the seller is a hard head and I don't want to rely on a difficult seller to make my 1031 transaction a success.

So my question is, are there any 'force majeure' clauses that kick in to extend the 45 day selection period given there was a natural disaster in the area?  I have been googling all day and my 1031 agent is lost on this and is pressuring me to identify additional properties in the next week before my 45 day identification window closes.

Any help regarding this would be greatly appreciated, thanks.

[Drew Reynolds]

In most cases, the 45- and 180-day deadlines are in-stone and the IRS does not provide extensions. However, there is an important exception.

1031 Deadline Extension For Presidential Declared Disaster Areas

In certain situations, IRS Bulletin 2007-34 provides “affected taxpayers” in Presidentially declared disaster areas with up to a 120 day extension of the 1031 exchange 45- and 180-day deadlines.

What is an “Affected Taxpayer”?

Under Treas. Reg. Sec. 301.7508A-1(d)(1), the term “Affected Taxpayers” generally includes parties that may have difficulty meeting the 45-day identification or 180-day exchange deadlines for any of the following reasons:

1. The relinquished property or the replacement property is located in Presidentially declared disaster area;
2. A party to your transaction has their principal place of business located in a Presidentially declared disaster area. This may include your qualified intermediary, the buyer, your attorney, your lender, or title company;
3. Any party involved in your 1031 exchange transaction is killed, injured, or missing as a result of the Presidentially declared disaster. As morbid as this sounds, this exclusion would theoretically extend to employees, family members, etc.
4. As the result of the Presidentially declared disaster, a document used in your 1031 exchange is damaged, lost, or destroyed.
5. As the result of the Presidentially declared disaster, a bank or lending institution temporarily delays, or decides to not move forward with a mortgage.
6. As the result of the Presidentially declared disaster, a transaction is delayed because of the inability to obtain flood, casualty, or title insurance that is required to complete the transaction

Don’t assume that you’re automatically granted an extension simply because the above conditions are met. Start by reviewing IRS’ News Release for the specific disaster, which is available online in the IRS Newsroom.