Storm after storm: The winter we’ve had in California has seemingly been four months with more rainy days than not. Interestingly, as you may have heard, the IRS has taken note.
The series of “atmospheric storms” we’ve experienced has been deemed by the Federal Emergency Management Agency (FEMA) as events that deserve relief, and 51 of 58 counties in California are considered “impacted.”
Because of this, the IRS has agreed to provide relief by postponing various tax filing and payment deadlines until Oct. 16, including those for most calendar-year 2022 individual and business returns.
• individual income tax returns, originally due on April 18;
• various business returns, normally due on March 15 and April 18;
• returns of tax-exempt organizations, normally due on May 15.
Among other things, this means that eligible taxpayers will also have until Oct. 16, 2023, to make 2022 contributions to their IRAs and health savings accounts.
For real estate investors, this has opened up a once-in-a-lifetime opportunity.
If you or a client are looking to sell an investment property, the time is now. Why?
Normally the tax code that governs 1031 exchanges allows for 45 days to identify only three potential replacement properties, with 180 days to close escrow on the exchange property. Finding three properties you like, which generate the income you need, all while potentially bidding against other buyers, is difficult. Sometimes very difficult, as the past two or three years have proven.
NOTE: 1031 is the tax code that outlines rules for exchanging an investment property or other qualifying investment. An investment property can be exchanged into another one, and the proceeds or gains from that sale can be rolled into the purchase of the new property, therefore deferring the tax on capital gains.
If you can’t close on one of the properties and exchange the sales proceeds into it, you end up paying capital gains taxes on those proceeds. That’s a huge loss of your earnings.
Now, however, if you sell a property and the transaction closes between April 19, 2023, and September 1, 2023, you have all the way until October 16, 2023, to identify your three exchange properties. Instead of trying to find the perfect properties in a mere 45 days, you now have months to ID the best options!
Who may be able to take advantage of this change?
Those who are affected are not just taxpayers with a principal residence located in the affected area. Relief may apply also to those with a business entity located in the affected area or even those whose records are stored in the affected area.
In addition, there are a variety of circumstances that may allow you to qualify as a person who’s eligible for a postponement due to “difficulty” associated with the storms. This could include an investment property located in the affected area or another party to the transaction (like the lender, title company or intermediary) located there.
As always, your specific circumstances may vary, so reach out to discuss the particulars of your situation.
This is truly an unprecedented opportunity. If you or someone you know owns an investment property and are weighing the Pros and Cons of selling now, this is a major plus in the Pro column. Kindly reach out if you would like to review your situation and determine the best possible outcome.