1031 exchange requirement

5 Replies

Hello BP community!!

I've been reading into the 1031 exchange and was curious about a requirement someone was trying to explain to me.

I was told if you complete a 1031 exchange you must rent out the property for xx amount of years, then live it in as a primary residence for xx of years ?

After reading up on it, I can’t seem to find this requirement anywhere. Was wondering if anyone has completed one or have heard this being a thing ?

Look forward to the responses, Thanks in advance!

Sebastian Madariaga

@Sebastian Madariaga my understanding is the general rule of thumb is you must rent it out for a minimum of two years to qualify for the exchange. Anything inside of that the IRS can contest as a non-valid 1031 transaction and come after you for the tax due. Hope this helps!

@Sebastian Madariaga ,  Stop giving yourself brain damage looking for that requirement.  There is no statutory holding period.  The standard is that your intent must have been to hold the property for investment use.  Most folks in the industry feel comfortable with anything more than a year.  As a matter of fact our industry once had a mantra of "one year and one day".  But that wasn't statute either just a way to describe a period that would demonstrate your intent.  The only magic is a year and a day or two years or more than a year is that your property will be reported on two consecutive tax returns.  

But there can always be situations where you can demonstrate your intent and a shorter (or longer" hold period is justified.

Hi @Sebastian, This is not a requirement for a 1031 exchange. There is not a specific number of years that the replacement property needs to be held, just that your intent is to hold the property for investment.