Is the property required to be 2 years rental for 1031 exchange?

4 Replies

I am selling a property which I have held for over a year. The majority of this period was used to evict the nonpaying tenant. We do have a judgement against the tenant over this. Can i use the proceeds to buy 1031 exchange property? Does the property have to have a rental history for two years? Could I be under the risk as a "dealer"   The QI said that it depends on my CPA's opinion.  I am confused. Thanks for anyone 's input and advise. 

Originally posted by @Rachel Zhang :

I am selling a property which I have held for over a year. The majority of this period was used to evict the nonpaying tenant. We do have a judgement against the tenant over this. Can i use the proceeds to buy 1031 exchange property? Does the property have to have a rental history for two years? Could I be under the risk as a "dealer"   The QI said that it depends on my CPA's opinion.  I am confused. Thanks for anyone 's input and advise. 

My guess is the QI wants your CPA to make the decision based on how the property has been handled for tax purposes. The key factors are probably date put in use as a rental and number of days you are claiming for use as a rental. If you purchased a property and the tenant never paid you a dime, then you have no rental income on your taxes. I would talk to your CPA because in the event you are audited, they are the one that needs to explain.

Hi Joe, Thanks for your reply. 

The main 2 questions are "Is there a minimum requirement for the length of the rental? " and " Must it be rented? " 

I do not see it in 1031 description. I purchased the house at a trustee sale. The " tenant" was the previous owner.  They got judgement on unpaid stay for many months.

@Rachel Zhang , There is no statutory holding period.  There is no statutory requirement for income. The standard is your intent.  If you bought the property to hold for productive use and there's a reason now while your intent is changing then you can do a 1031.  If your intent in buying it all along was to flip it then you can't do a 1031.  

No one knows your situation better than you and your accountant.  The facts of this purchase could be interpreted either way.  So your QI is wanting you and your accountant to have your story straight.  

@ Dave foster  Thank you for the clarification. Intent is a good word here. 

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