NMHC is continuing to push for timeline extensions for like-kind exchanges. The COVID-19 crisis is threatening the ability of real estate investors to complete like-kind exchanges. Under the most common type of like-kind exchange, a taxpayer sells a relinquished property and deposits the proceeds with a Qualified Intermediary. The taxpayer subsequently has 45 days to identify replacement property and 180 days to complete a transaction. Failure to meet the strict deadlines for identifying trade properties and then actually closing on a replacement property result in immediate recognition of capital gain income that could otherwise be deferred.
As such, NMHC and NAA joined other leading trade associations to ask the Treasury Department to both clarify and expand relief available to taxpayers conducting like-kind exchanges. The industry’s April 20 letter requested:
- Clarification that the government’s previous action to provide like-kind exchange made applicable expanded relief provided in Section 17 of Rev. Proc. 2018-58.
After NMHC spearheaded a coalition letter on March 23 asking Treasury Department to take administrative action to delay deadlines applicable to like-kind exchanges that are currently underway, the Internal Revenue Service (IRS) announced on April 9 that taxpayers whose 45-day deadline to identify a replacement like-kind exchange property or whose 180-day deadline to close a like-kind exchange transaction expires on or after April 1 now have until July 15 to meet these deadlines. The April 20 industry letter requests that the IRS clarify whether more generous like-kind exchange relief provided by Rev. Proc. 2018-58 was activated by that guidance. If so, the 45-day and 180-day deadlines for identifying and closing on like-kind exchanges would be postponed by 120 days.
- Additional relief for like-kind exchanges. Specifically, the real estate industry letter requested that March 13, 2020, be deemed to be the beginning date of disaster relief for like-kind exchanges, that each day of the disaster period from March 13 to July 15, 2020 be treated as the date of the federally declared disaster, and that taxpayers with one like-kind exchange deadline falling within the disaster period be permitted to an extension of both deadlines
If granted, the requested additional relief would provide taxpayers the ability to retroactively revise an identification of like-kind replacement property. This relief is critical because properties identified by a 45-day deadline that preceded the full onset of the pandemic may, for example, no longer be viable or the value may have fallen to a degree that a closing is no longer feasible.
Like-kind exchanges support the real estate sector by encouraging investors of all sizes, including small businesses and individuals, to remain invested in real estate while still allowing them to balance their investments to shift resources to more productive properties, change geographic location, or diversify or consolidate holdings. Like-kind exchange rules encourage investors to remain invested in real estate by allowing property owners to defer capital gains tax if, instead of selling their property, they exchange it for another comparable property. As long as the taxpayer remains invested in real estate, tax on any gain is deferred. When the taxpayer ultimately sells the asset, the capital gains tax is paid.
For more information on NMHC’s advocacy efforts regarding COVID-19, please visit NMHC’s COVID-19 Hub.
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