1031 exchange, building new construction

[Hossein Akbari]

Hello experts,

I was wondering if a single family new construction project could be structured to benefit from a 1031 exchange. If yes, what’s the requirements?

Concept: buy an old house, knock it down, build a new one and sell. Skip the tax for now until business generates enough income. Or any other creative way to delay the tax bill?!

Thanks 

[Bill Exeter]

Hi @Hossein Akbari, 

Intent to acquire and hold replacement property for rental, investment or business use is critical.  Properties acquired and held for rehab or rebuild and then sale do not qualify.  They are held for sale as opposed to held for investment as required for 1031 Exchange treatment.  

You would qualify if you buy, rebuild and then hold for a period of time to demonstrate that you did have the intent hold for rental or investment purposes.  Most advisors recommend at least one year, but in a rebuild I would recommend a longer holding period of 18 to 24 months (hopefully straddling three tax years).