Have you been concerned that it would be difficult or impossible to complete a 1031 exchange transaction due to the market disruptions from coronavirus? Good news: On April 9, the IRS extended the deadline to July 15th, for investors who have to either identify or close on a property between April 1st and July 15th, in order to retain their tax-deferred status.
If that guidance sounds vague to you, you are not alone. The IRS is expected to clarify whether, for example, a property identified on July 15 will still have the customary 180-day window to close—or if that deadline falls on the earlier date too. We will provide updates as they become available on the R.O.I. Properties LinkedIn page.
Beyond the extra breathing room in the deadline, today’s market circumstances may lend themselves to bringing properties to market now, to attract a 1031 exchange buyer. As noted in CRE, Post-COVID the Greater Phoenix market is still working off of higher pricing, comparable sales and low cap rates. That works to the advantage of those who are considering selling in order to free up capital, particularly while there are still buyers (and particularly, 1031 buyers) in the market.
Obviously, there are a few unusual challenges in the current commercial real estate market. First, social distancing and other restrictions make it slightly more difficult to access properties now, which may remain the case for an unknown period going forward. Second, you may have seen attractive properties that were on the market fall out of the market due to unforeseen circumstances. This creates some challenges for sellers, and potential opportunities for more sophisticated buyers.
Conversely, we are starting to see interesting commercial real estate opportunities come up as more properties go up for sale. While it may have seemed challenging to acquire a replacement property just a few weeks ago, the extended deadline and more motivated sellers may have changed it to a far more opportune time.
1031 exchanges provide significant tax benefits for investors, provided they are executed properly. For strategic advice on selling, nominating, or purchasing a like-kind commercial property, contact R.O.I. Properties at 602-319-1326.