What if there's a seller that has a lot for sale that they have owned for one year - can they do a 1031 exchange on the sale of that lot?
How Was the Property Held?
The answer to the question really depends on how they have held the property.
If they purchased the lot intending to use it for investment or business purposes then they can probably do the 1031 exchange because they held it for the requisite intent.
However if they bought the lot intending to flip it, holding it primarily for resale, then the IRS could make the argument that the property doesn't qualify for 1031 because it's their inventory.
The Qualified Purpose Question
The real question is has the taxpayer held the property for a qualified purpose?
The longer that you have held it for that qualified purpose the better. The IRS has never mandated or given a bright-line ruling on how long you have to hold your property prior to a 1031 exchange. Because of that ambiguity there is a lot of uncertainty as to how long one has to hold the property.
Sometimes people want to hold it for a year. Sometimes people want to cross over into the next tax year so they have at least one tax return under their belt. Other folks are very conservative and want to hold it for several years before they dispose of it in a 1031 transaction.
- 1031 Hotline: If you have questions about qualifying purpose, the held for requirement, or anything regarding 1031, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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