For real estate investors, 1031 exchanges can be a powerful tool for deferring taxes on capital gains when swapping investment properties. Recent events like Hurricane Helene have brought additional tax relief to affected areas, including extensions for 1031 exchange deadlines.
In this post, we’ll provide a quick overview of what a 1031 exchange is, answer common questions, and dive into the critical extensions offered in the wake of Hurricane Helene.
What is a 1031 Exchange?
A 1031 exchange—named after Section 1031 of the Internal Revenue Code—allows you to defer paying capital gains taxes when you sell an investment property, provided you reinvest the proceeds into another “like-kind” property. This tax-deferral strategy can help investors build wealth over time by continually rolling gains into new properties, without taking an immediate tax hit.
Key points:
- Like-kind refers to real estate property of the same nature, such as swapping a rental property for a commercial building.
- Since the Tax Cuts and Jobs Act in 2017, 1031 exchanges only apply to real property (i.e., real estate) and no longer include personal property like equipment or vehicles .
What Are the Key Deadlines for a 1031 Exchange?
A 1031 exchange has specific timing requirements:
- You must identify a replacement property within 45 days of selling your original property.
- You have 180 days to complete the purchase of the replacement property.
These deadlines are strict—unless there’s a natural disaster, like Hurricane Helene.
What Happens to 1031 Exchange Deadlines After Hurricane Helene?
The IRS has provided significant relief to taxpayers impacted by Hurricane Helene, extending key tax deadlines, including those for 1031 exchanges. If you’re in an area affected by the hurricane, here’s what you need to know:
- Investors impacted by Hurricane Helene now have until May 1, 2025 to complete actions related to their exchanges, including identifying and closing on replacement properties.
- This extension applies to all individuals and businesses located in the disaster areas, which include Alabama, Georgia, North Carolina, South Carolina, and parts of Florida, Tennessee, and Virginia .
- Who Qualifies for the Extension?:
- Any taxpayer residing or operating a business in areas covered by the FEMA disaster declaration qualifies for these extended deadlines. The links above to each state provide details for counties included in the relief.
- This includes properties located in affected regions, as well as taxpayers whose records or tax professionals are in the impacted areas, even if the taxpayer themselves is not .
How Does This Impact My 1031 Exchange?
If your exchange transaction is affected by Hurricane Helene, these extensions give you additional time to:
- Identify replacement properties beyond the typical 45-day window.
- Complete the exchange within the extended timeframe of May 1, 2025, rather than adhering to the original 180-day rule.
For instance, if your 1031 exchange process started before or during the hurricane, your deadlines for both identifying and closing on replacement properties will now be extended. This can provide crucial breathing room for investors navigating logistical challenges caused by the disaster.
If you believe you qualify for these extensions, be aware that they’re automatically applied to those with an IRS address in the disaster area. However, if you receive a late filing notice, we recommend contacting the IRS to resolve any discrepancies.
The Hurricane Helene relief measures offer much-needed flexibility for real estate investors engaging in 1031 exchanges in disaster-affected areas. Understanding these extensions can help you navigate the process smoothly and ensure you make the most of the tax benefits available.
For more details on 1031 exchanges or to determine if you qualify for the Hurricane Helene extensions, consult the IRS disaster assistance page and speak with qualified tax and legal professionals.
