Tax Relief for Disaster Victims in Hawaii, Alaska, Michigan, West Virginia, Rhode Island, Tennessee, Maine, Connecticut, California and Washington

The IRS has issued several notices over the past few months regarding relief available to victims of disasters in Hawaii, Alaska, Michigan, West Virginia, Rhode Island, Tennessee, Maine, Connecticut, California and Washington. See the IRS Notices at the preceding links. A taxpayer involved in a 1031 exchange may qualify for relief under either Section 6 or Section 17 of Revenue Procedure 2018-58 (the “Rev. Proc.”), as described below, if they are a victim of one of these disasters.

An “Affected Taxpayer” is an individual who lives, or a business with a principal place of business located in, the applicable Covered Disaster Area from the below list. Affected Taxpayers are entitled to relief in the form of an extension regardless of where their exchange property is located.

Affected Taxpayers have two options for relief:

Under Section 6 of the Rev. Proc., an Affected Taxpayer whose 45^th and/or 180^th day deadline falls on or after the listed Disaster Date, but before the applicable Extension Date, may extend the deadline to the Extension Date.
Under Section 17 of the Rev. Proc., an Affected Taxpayer whose relinquished property was transferred prior to the Disaster Date may extend any deadline falling on or after the Disaster Date by the later of 120 days or to the Extension Date.

Taxpayers who are not “Affected Taxpayers,” but who otherwise have difficulty meeting their 45^th or 180^th day deadlines, may also be eligible for the Section 17 extension relief of either 120 days or to the Extension Date (whichever is later). For example, the replacement property could be located in the Covered Disaster Area and all parties there are prevented from being able to consummate a closing by the 180^th day. In such a case, even though the Exchangor purchasing the property does not reside in the Covered Disaster Area and is thus not an “Affected Taxpayer,” they are able to make use of the extension so that they can acquire the property and complete their exchange.

The full text of the Rev. Proc., including all circumstances in which Section 17 extension relief can be granted to a non-Affected Taxpayer, can be viewed here: rp-18-58.pdf (irs.gov).

Additionally, any 45^th day that fell prior to the Disaster Date is also extended if the taxpayer’s identified replacement property is substantially damaged by the disaster.

Taxpayers should always consult in detail with their tax advisors when determining whether they are eligible for and what steps must be taken to utilize an extension due to a disaster. It is also important to check with your applicable taxing authorities whether on a state or local level, these extensions will be honored for any state-specific tax deadlines to be met.

RECENT DISASTER RELIEF:

Wildfires in Hawaii

Disaster Date: August 8, 2023

Extension Date: Extended to August 7, 2024

Covered Disaster Area: Maui and Hawaii Counties in Hawaii.

Storms, Landslides and Mudslides in Alaska

Disaster Date: November 20, 2023

Extension Date: July 15, 2024

Covered Disaster Area: Any area designated by FEMA, including Wrangell Cooperative Association of Alaska Tribal Nation.

Storms and Flooding in San Diego, California

Disaster Date: January 21, 2024