1031 exchange requirement

Lewes, DE · Member since 2016 · 16 posts · 2 votes

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

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Rob Pecha

Specialist · New York City, NY · Member since 2019 · 53 posts · 28 votes

@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!

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Rob Pecha
Specialist · New York City, NY · Member since 2019 · 53 posts · 28 votes
6y
@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!
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Sebastian Madariaga
OP
Lewes, DE · Member since 2016 · 16 posts · 2 votes
6y
@Rob Pecha thanks for such a quick response Rob! That’s exactly what I read and seems like after the 2 years you can do whatever you want with it.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
@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.
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Sebastian Madariaga
OP
Lewes, DE · Member since 2016 · 16 posts · 2 votes
6y
@Dave Foster awesome thank you so much !! I’m loving what I’m hearing haha. Hope you have a great day
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Amanda HanPro Member
Accountant · Fullerton, CA · Member since 2009 · 139 posts · 68 votes
6y
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.
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