How long must a property be in your name before it can be 1031?

Question

Relatively new here, thanks in advance for answering my question.

For context, I own a property with several relatives on the deed as basically caretakers, but the property is understood to be mine; we'd like to take their names off of the deed, and then utilize 1031 rules to change into another property. (My understanding is that the ownership must remain identical in both the before-and-after properties for a 1031 exchange.)

Is there a minimum amount of time that it must be only in my name before I can use the 1031 exchange?

Leslie Pappas · Answer

Hi @Vincent Chin, there is no specific holding period requirement for either the relinquished or replacement property. Time is less important than the investor’s intent at the time of acquiring the property (did the investor intend to hold the property as an investment).

Taxpayers who hold their relinquished property for two years satisfy the requisite intent for a 1031 Exchange (or two tax reporting periods, since in an audit the IRS may look backwards and forwards two tax returns). A holding period of over a year has generally been accepted, but may be subject to review by the IRS. A much shorter holding period has been accepted, where a change in circumstances indicates that the taxpayer had intended to hold the property for a longer period. The IRS will look at ‘investment intent’ and will call a taxpayer quickly flipping property a ‘dealer’ vs. an ‘investor’.

Rick H. · Answer

@Dave Foster Thanks for reminding me of that.

The big thing as I understand it, (in addition to like-kind asset rules, etc.) is intent of the seller.

BTW, I used some leftover proceeds from a 1031 sale some years ago to acquire a property by Adverse Possession. That is to say, I took over the property but did not have anything like marketable title (or even close).

My basis is the cost of paying off the small loan balance, ongoing costs for the qualifying period (including property taxes) and the legal costs related to Quiet Title. I sold the property several months ago (with title insurance) and carried back a Seller Financed Note in order to push some of the profit gain into 2017.

So, even a defective title doesn't have to stand in the way of receiving the benefits you desire.

Dave Foster · Answer

@Vincent Chin, The facts of the case will determine finding if your exchange is questioned. There is no statutory holding period. If your intent is primarily to resell then you cannot do a a 1031. If your intent is to hold for productive use then a 1031 would be appropriate. @Leslie Pappas is correct, Most conservative wisdom says that a hold of more than a year is sufficient. But there are reasons why a property held for less than a year could be 1031d and also where a hold of a year may not be sufficient.

Your situation is interesting because the change of ownership really looks like more of case of making the titled ownership match the facts of the case. It's worth a discussion with your accountant and attorney to see if they agree. If you have always been understood to be the owner and all activity of the property has been on your tax return then there will be a paper trail to that effect and you could probably do a quiet title transfer and complete a successful 1031 with you selling and then buying in your name.

An even better way to do it would be for all of your to sell the property do a 1031 and buy the new property also in everyone's name and have them transfer title to you after the fact under the oversight of your accountant so there are no tax consequences to anyone.

How long must a property be in your name before it can be 1031?

How long must a property be in your name before it can be 1031?

Most Popular Reply

3 Replies