In response to the coronavirus (COVID-19) pandemic, a group of real estate associations, including the Alternative & Direct Investment Securities Association (ADISA) and the Institute for Portfolio Alternatives (IPA), have asked the Treasury Department and Internal Revenue Service to delay deadlines applicable to 1031 like-kind exchange transactions that are currently underway.
The group believes the deadlines to identify replacement property and/or complete like-kind exchanges should be extended for 120 days or to the last day of the general disaster extension period authorized by the IRS, or other guidance.
Section 1031 of the Internal Revenue Code allows investors to defer paying capital gains taxes on investment property sales by reinvesting the proceeds into a similar investment property within a specified time frame. After an investment property is sold, investors typically have 45 days to identify the replacement property and 180 days to complete a transaction.
The trade groups claim that the COVID-19 crisis is threatening the ability of real estate investors to complete like-kind exchanges, and current circumstances make compliance with like-kind exchange reinvestment rules impossible.
“We are extremely concerned that taxpayers who may have commenced an exchange will be unable to identify a replacement like-kind exchange property and/or close on a transaction even if such a property can be identified,” the letter states. “Taxpayers, many of whom are small and medium-sized businesses and middle-class investors, should not have to be concerned about the possibility of having to pay significant capital gains taxes because like-kind exchange transactions cannot be completed due to the disruption caused by the coronavirus pandemic.”
The letter can be read in its entirety here. In addition to ADISA and the IPA, the letter was signed by the National Multifamily Housing Council, National Apartment Association, American Land Title Association, American Resort Development Association (ARDA), American Seniors Housing Association, Asian American Hotel Owners Association (AAHOA), Building Owners and Managers Association (BOMA), International CRE Finance Council, Federation of Exchange Accommodators (FEA), International Council of Shopping Centers, Mortgage Bankers Association, Commercial Real Estate Development Association Nareit, National Association of Home Builders, National Association of REALTORS, CCIM Institute, Institute of Real Estate Management, REALTORS Land Institute, and the Real Estate Roundtable.
The Alternative & Direct Investment Securities Association bills itself as the nation’s largest trade association representing the non‐traded alternative investment space. Its members are typically involved in non-traded real estate investment trusts, business development companies, master limited partnerships and private and public funds (LPs/LLCs), 1031 exchange programs (DSTs/TICs), energy and oil and gas interests, equipment leasing programs, or other alternative and direct investment offerings. The association was founded in 2003 and has more than 4,000 members.