1031 Exhange: Holding periods

3 Replies

I have a question about qualifying rules for 1031 exchanges.

Let’s pretend:

I make a $100,000 profit from a property that was held less than one year. Can I then take that $100,000 and invest it using a 1031 exchange?

Potentially-Was that property a rental?


Your status says your a flipper...and flip income is ordinary income and doesn't typically qualify for 1031. 

@Matt Honeyford , And @Natalie Kolodij is acting just like an IRS field agent would if they audited your return.  They'd look everywhere.  Intent is what the standard is not any specific time period.  You hold yourself out as a flipper.  You've probably done a bunch of flips.  So your intent is going to always naturally be assumed to be flipping not holding.  So it wouldn't qualify for 1031 treatment.

How do you demonstrate your intent - Any number of ways including the things you write on Bigger Pockets could be presented as well as other written correspondence with professionals.  Your past practice and current business model.  The facts of this specific case would be very important.  Did you put a for sale sign in the yard and the rehab took longer than you thought - no 1031.  Or did you put a tenant in and then an unsolicited offer come in.

Most people feel comfortable at anything more than a year.  But there could always be circumstances where a shorter (or longer) hold period could be justified.  

Just remember that a fortunate accident might be an accident.  But when it happens several times a year it looks very different.  So don't do something just because you can get away with it.  But also don't not do something you know to be right just because it might be questioned.

@Matt Honeyford 

Yes, you can do it. Here are the major 1031 exchange rules -

  • A 1031 investor must hire a Qualified Intermediary (QI). The proceeds from the relinquished property must be transferred to the QI. 1031 investors aren't allowed to touch the proceeds.
  • Both relinquished and replacement properties must be like-kind.
  • The value of the replacement property must be equal to or greater than the value of the relinquished property.
  • Upon closing on the sale of the relinquished property, you must identify one or more potential replacement properties within 45 days. This time frame of 45 days is known as the Identification Period.
  • Every 1031 exchange must be completed within 180 days, which begins the day the relinquished property is sold.
  • Only investment properties can be exchanged using a 1031 exchange and not primary residences.

Feel free to contact in case you need to know more.

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