Pursuant to the President’s March 13, 2020 emergency declaration, the Secretary of the Treasury has provided relief from certain Federal tax deadlines to those impacted by the COVID-19 pandemic. In the latest guidance providing such relief, Notice 2020-23 issued on April 10, 2020, the Treasury has expanded its relief efforts to investors and funds involved in 1031 exchanges and opportunity zone investments.
Both 1031 exchanges and opportunity zone requirements have strict deadlines that must be met to obtain the tax benefits sought after. With respect to 1031 exchanges, a taxpayer must identify replacement property within 45 days of the sale of the relinquished property and acquire the replacement property (or sell the relinquished property in a reverse exchange) within 180 days of the sale of the relinquished property (or acquisition of the replacement property in a reverse exchange). Similarly, opportunity zone compliance generally requires that a taxpayer invest his, her or its capital gains in a qualified opportunity fund within 180 days from the event that generated the capital gains (subject to some complexities beyond the scope of this alert).
These 45-day and 180-day requirements were causing concern for many taxpayers involved in or considering 1031 exchanges and opportunity zone investments given the many unknowns resulting from the coronavirus pandemic. In recognition of these concerns, Notice 2020-23 provides an automatic extension until July 15, 2020 of any 1031 exchange 45-day or 180-day deadline or the opportunity zone 180-day period deadline that would otherwise fall on or after April 1, 2020, and before July 15, 2020. An extension is not available if the 45-day or 180-day period expired prior to April 1.
Additionally, with respect to opportunity zones, there is generally a 31-month safe harbor for expending working capital held by an opportunity zone project. Regulations allow this period to be extended by 24 months if the project is located in an opportunity zone within a federally declared disaster area. Now that the entire United States has been declared a federal disaster area, taxpayers should be able to take advantage of the extension for opportunity zone projects nationwide.
We are continuing to monitor both federal and state bills and administrative guidance that will impact your projects, specifically with respect to 1031 exchanges and opportunity zone investments, and will do our best to keep you informed. Meanwhile, if you have any questions on the above extension or relief, or 1031 exchanges or opportunity zones in general, please contact Bradley Wooldridge or your Manning Fulton relationship attorney.