1031 Exchange to sell a newly built home and buy new property

5 Replies

Hi I'm building a new Single family residence on some land that I've owned. I want to be able to make sure that I can do a 1031 exchange on the property once it's completed. I've seen comments on doing the reverse (i.e. doing a 1031 to buy land and build on it), but I want to sell this to buy other rental property in a more lucrative area).

@Neil Mammen , What I think you're wanting to do is to be able to sell that property when complete and perform a 1031 on it so purchase some other property.

The only way that property will qualify for a 1031 exchange is if you have the intent to hold it for productive use.  You have owned the land for quite a while but when you turned a shovel that changes the character of the land.  And the house and land become inventory - your intent in building the house/improving the land was to resell.  You're a builder.  And builders can't do 1031s.  

So if you want to you'll need to do some things that will demonstrate your intent - put a rentor in it (even if they have an option to purchase that is fine).  Hold it so that you can say your primary intent was not to resell but to hold.  Then once you feel comfortable that you've established that intent then you could do a 1031.  There's no statutory holding period.  But most folks feel comfortable at anything more than a year without some other mitigating circumstances.

Anytime there's construction involved there is going to be an automatic assumption that your intent is to sell not hold.  So you have to overcome that.

Thanks for your response by the way. I should add, I'm not a builder in the sense that I've never built anything else before. But if by builder you mean when I started to build I became a "builder" I understand. Thanks.

Renting land for storage won't make the property a business use asset. 

If it hasn't shown/been reported on taxes at all as an in-service depreciable asset It likely won't qualify for a 1031. 

Rent it for a year, then sell. 

Or do whatever else @Dave Foster says- because he's the master of 1031. 

@Neil Mammen If you want to qualify your property for 1031 exchange then, the only way is to use it for productive use. And if you want to do 1031 exchange, then you need to put a renter in it. Hold it so that you can mention that the primary intent was to hold it not to resell. And once you feel comfortable with the intent that you have established, then you can do a 1031 exchange.