Home Selling in Truckee>Question Details

Christine Hi…, Real Estate Pro in Truckee, CA

Does a seller need to have owned a property for a minimum amount of time to qualify for a 1031 Exchange?

Asked by Christine Hinkel, Truckee, CA Mon Nov 18, 2013

I have a seller that has owned his property for only 5 months. Can he qualify to do a 1031 exchange or is there a minimum amount of time that he needs to have owned it for?

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Answers

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There is no set holding period required by statute or regulation. The owner must have intended to hold the property as an investment or for trade or business purposes at the time it was acquired. The original draft of the proposed 1031 regulations contained a 1-year holding requirement, but that provision did not make it into the final version of the regulations. A minimum holding period of 1 year is advisable, and certainly you would want to have the sale occur in a different tax year than when the property was acquired if possible. There is caselaw pre-dating the regulations that upheld a transaction within a period of months where the exchangor was able to demonstrate an original intent to hold the property and that such intent changed subsequent to its acquisition. There is another case in which the sale did not occur for 2 years, but an exhange was disqualified because the owner had begun to market it for sale immediately. If you are in litigation with the IRS, you may lose practically, even if you win legally. If your seller is aggressive and can show that his intent to hold the property changed after it was purchased, an exchange may succeed, but there is a lower chance of audit if the property is held for at least a year before engaging in a new transaction.

Scott R. Osgood, V.P.
Colorado Exchange Company, Inc.
1 vote Thank Flag Link Wed Jan 8, 2014
Visit with a 1031 administrator and/or your tax attorney to confirm.
0 votes Thank Flag Link Thu Jan 9, 2014
I agree with Trevolyn. It is my understanding, that there is nothing in the tax codes that specifically states a certain amount of time. Long term gain starts after 1 year so 5 months would be really aggressive in nature.
Most conservative tax advisors or 1031 exchange experts would recommend 1 yr. or more but there could me exceptions. As a Realtor, I would advise that my client have a discussion with their CPA, a good tax attorney or a 1031 Intermediary to discuss their exact details before moving forward.
0 votes Thank Flag Link Mon Nov 18, 2013
From what I know, there is no technical holding period, but that is not the only criteria.

I would talk to

Ron Ricard
IPX 1031
Vice President
Certified Exchange Specialist
(408) 483-1031 Cell
(209) 612-0159 Cell
(877) 747-7875 Toll Free
ron.ricard@ipx1031.com

he is an expert.

Mario Pinedo, CCIM
Mortgage Banker
CS Financial
http://www.HomeLoans.LA
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BRE Broker 01118365
NMLS 1029116
Office 424-249-7434
Cell 415-269-6249
mpinedo@csfinancial.com
Twitter @mariopinedo
0 votes Thank Flag Link Mon Nov 18, 2013
Mario Pinedo,…, Real Estate Pro in Cupertino, CA
MVP'08
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This one could still qualify but I would suggest that you have your seller consult a tax professional since we as agents are not experts in tax law.

From what I know of 1031 exchanges: 'Both the relinquished property and replacement property must be held for productive use in a trade or business or for investment. Property acquired for immediate resale will not qualify.'
0 votes Thank Flag Link Mon Nov 18, 2013
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