1031 Exchange Deadlines Extended for CA Wildfire Victims
1031 Exchange Deadlines Extended for CA Wildfire Victims
Client Update: IRS Disaster Relief for California Wildfires
The IRS recently issued Notice 2025-05 (link to Notice 2025-05), which provides tax relief for taxpayers affected by the wildfires in Los Angeles County, California. This notice offers deadline extensions for certain tax-related actions, including those related to 1031 exchanges. Here's a summary of the key provisions:
Affected Taxpayers
"Affected Taxpayers" are those residing or having a business in Los Angeles County. They have the option to choose relief under either Section 6 or Section 17 of Revenue Procedure 2018-58 (link to Rev. Proc. 2018-58), but not both.
Section 6 Relief
Postponed Deadlines: Deadlines falling between January 7, 2025, and October 15, 2025, are postponed to October 15, 2025.
Eligibility: Applies only to "Affected Taxpayers" as defined in Notice 2025-05.
Example:
An Affected Taxpayer has to file a tax return by April 15, 2025. Under Section 6 relief, this deadline is postponed to October 15, 2025.
Section 17 Relief
Postponed Deadlines: If the relinquished property was sold on or before January 7, 2025, the 45-day and 180-day deadlines for 1031 exchanges that have not passed are postponed for 120 days or until October 15, 2025 (whichever is later).
Eligibility: Available to both "Affected Taxpayers" (who did not elect Section 6 relief) and "Non-Affected Taxpayers" who meet certain criteria.
Relinquished Property Transfer: For Section 17 to apply, the relinquished property must have been transferred on or before the disaster date (January 7, 2025).
Example 1:
An Affected Taxpayer sold a relinquished property on January 5, 2025. The 45-day identification deadline is February 19, 2025, and the 180-day exchange deadline is July 4, 2025. Under Section 17 relief, both deadlines are extended to October 15, 2025.
Example 2:
A Non-Affected Taxpayer sold a relinquished property on December 15, 2024, and experienced significant delays in identifying a replacement property due to the wildfires. This taxpayer may qualify for an extension under Section 17 if they can demonstrate that the disaster hindered their ability to meet the deadlines.
Non-Affected Taxpayers
"Non-Affected Taxpayers" who meet the criteria in Section 17 and whose exchange commenced on or before the disaster date may qualify for 120-day extensions of either or both the 45-day and 180-day deadlines. However, they cannot qualify for relief under Section 6. To be eligible, "Non-Affected Taxpayers" must demonstrate difficulty meeting the deadlines due to the disaster for reasons specified in Revenue Procedure 2018-58.
Important Notes
Taxpayers should consult with their tax advisors to determine eligibility and applicable deadlines.
This is a general summary, and specific situations may vary. Please refer to Notice 2025-05 and Revenue Procedure 2018-58 for detailed information.
We will continue to monitor IRS guidance and provide updates as needed. Please don't hesitate to contact us if you have any questions.