What’s The Holding Time Of A Property To Qualify For 1031 Exchange?
Eliminate The Confusion
The holding period for an investment property usually comes with a lot of confusion. It’s true because neither the IRS nor the rules provide a clear definition of ‘held for investment.’ However, the regulations do state that unproductive real estate held by a non-dealer for future appreciation or use is held for investment purposes. The confusion also prevails because many investors or exchangers have incorrect or incomplete answers to this question. Want to know more? Keep reading for a better understanding. You can also connect with us to discuss your exchange circumstances.
Our Perception On 1031 Exchange Hold Times
There is no definite holding period for a property to qualify for a 1031 exchange. However, time is an important aspect that the IRS will consider to determine the exchanger’s intent for relinquished and replacement properties.
In the event you go for an exchange, the IRS might look into the facts and circumstances surrounding your situation to determine the intent. As an investor, you can support your claims of intent to hold for investment purposes in a number of ways.
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Two More 1031 Exchange Perceptions
In a private letter ruling- PLR 8429039, the IRS has stated a minimum holding period of two years would be sufficient for a 1031 exchange. However, it is not a legal precedent for investors. In fact, many consider this as a conservative holding period, given that there are no other factors contradicting the investment intent.
Other investment advisors might suggest holding the property for at least a year. The reason behind this is two-folded. First, a holding period of 12 or more months would mean that an investor would be able to reflect the investment intent by filling for two-tax years. Second, Congress proposed a one-year holding period back in 1989. However, this proposal was never incorporated into the tax code.
The central issue has always been the investor’s intent in holding relinquished and replacement properties. It is important for both, the exchanger and advisors, to substantiate the relinquished and replacement properties in a tax-deferred exchange were acquired for investment purposes only. The actual time to hold a property usually reflects the exchanger’s intent.
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