Here’s a common question we get asked by a lot of clients: “How long do we need to hold the new replacement properties until we can 1031 again out of them?” Unfortunately, there is no clear cut answer to this question, but we hope to clarify things at least a little bit in this article.
Holding Period According to Section 1031
Holding period requirements do not have a clear answer. Section 1031(a)(1) states that:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
There is no minimum required period of time that the Replacement Property must be owned that we can point to in the IRC or the Regulations. However, for the IRC 1031 to qualify, a taxpayer must have had the intention (or mental state) of holding property for investment or for use in a trade or business. The longer the better may be the safest answer. Holding primarily for re-sale (as inventory or house flips) will not qualify.
- 1031 Hotline: If you have questions about 1031 replacement properties, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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