Holding Guidelines for 1031 Exchange Properties
Section 1031 of the Internal Revenue Code or Section 1.1031 of the Treasury Regulations clearly states that an Investor must intend to hold their 1031 Exchange property for rental, investment or use in business; however, these guidelines do not spell out how long an Investor must hold these properties for in order to qualify for tax deferred status.
There are no rules governing holding of property in a 1031 Exchange; however, a number of advisors indicate that one to two years is sufficient to satisfy the requirements of Qualified Use. When the legal title to an Investor’s replacement property is held by in a partnership and corporation, however, the transaction becomes much more complex in regards to hold time, especially if members of the partnership part ways and assets must be divided.
But ultimately, the longer an Investor holds a property before a 1031 Exchange, the easier it is for them in the long run; the shorter the time, the greater the risk of a government agency stepping to question the Investor’s intention of holding the property for rental or business purposes. At the risk of sounding redundant, using the property for business purposes is the most effective way of proving that the Investor’s intention was to hold the property for business purposes when it comes to the IRS or other government agency. Doing so for at least a year would be most effective, as in the past U.S. Congress considered a minimum holding requirement of 12 months for both relinquished and replacement properties. This measure was never enacted, but it does give a general idea of the time frame they would consider when determining the hold time on a property in a 1031 Exchange.
Disclaimer: 1031 exchange made simple does not guarantee the performance of the QI's in our referral network and we can not be held liable for any misrepresentations or mistakes in regards to a 1031 exchange by one of the QI's that we refer to you. 1031 Exchange made simple does not provide tax advice nor can we make representations regarding the tax consequences of an exchange transaction. 1031 Exchange made simple is a 1031 QI Referral Network. 1031 made simple is not responsible (in any way) for the performance, creditability, and financial condition of any QI in our network. In this new economic environment it is imperative that all potential 1031 exchange customers do their own due diligence and research on any QI that they may use, on a 1031 exchange. Please verify and check the validity of the Bonding and Insurance of your QI. It may be wise to have your 1031 exchange accounts set up as separate, individual customer accounts. Our web site is to be used as a information based web site only. All parties doing a 1031 exchange must consult their tax advisors or attorney for this information.
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