How long should I lease for it to qualify for the 1031 exchange

General Real Estate Investing
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How long should I lease for it to qualify for the 1031 exchange

Mary Jay
Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes

Hi guys,

In order to qualify for a 1031 exchange, 

1) how long is the property needs to be rented?

2) does the rental income need to be reported on taxes for a certain period of time ? (O sense it probably will be the same answer as for the first question)


thank you! 

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
2y

@Mary Jay, There's actually no statutory requirement for income or holding period.  Vacant land or property that you have held for appreciation would qualify.  

Where it gets fuzzy is if you never rented or tried to rent.  But also used it for personal use.  In that event the IRS could say you weren't really holding as an appreciating investment.  You were holding it for personal use.  But if you're not using it for personal use then it should be easy for your accountant to agree with your investment intent.

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2y

    You should probably post more of your situation to get a better answer…

    As our buddy Dave would say “there is no hard and fast rule, it’s all about intent. Did you intend to rent it out as an investment when you bought it..”. Then he’d tell a story about a bear. :-). 

    But I believe there’s a safe harbor at 2 years. Then the debate becomes is that 730 days, 2 tax years or literally as short as 2 days, Dec 31st and Jan 1st? 

    The reason I ask for details/your backstory is often people find out they don’t need one (they’re trying to sell their primary or a home that was their primary until last year or the year before. Or they’re selling a home they just inherited which would be tax free. Sometimes they’r even selling a property at or near a loss.)

    So now that you know the intent and 2 year rules if you want a bette answer tell us “the rest of the story”….

    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    2y
    Quote from @Bill B.:

    You should probably post more of your situation to get a better answer…

    As our buddy Dave would say “there is no hard and fast rule, it’s all about intent. Did you intend to rent it out as an investment when you bought it..”. Then he’d tell a story about a bear. :-). 

    But I believe there’s a safe harbor at 2 years. Then the debate becomes is that 730 days, 2 tax years or literally as short as 2 days, Dec 31st and Jan 1st? 

    The reason I ask for details/your backstory is often people find out they don’t need one (they’re trying to sell their primary or a home that was their primary until last year or the year before. Or they’re selling a home they just inherited which would be tax free. Sometimes they’r even selling a property at or near a loss.)

    So now that you know the intent and 2 year rules if you want a bette answer tell us “the rest of the story”….

    The property was sitting empty for the last 20 years, now they want to sell it but the Tax burden is too high. So they wanted to rent it for a while to qualify for the 1031 exchange… but they want to know how long they should rent it for before they qualify for the 1031 exchange…

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2y

    Check with @Dave Foster or your favorite CPA but I BELIEVE even a vacant house can  qualify as an investment (like vacant land would). You probably don’t have to rent it out at all to qualify if it hasn’t been used as a vacation or 2nd home for the last 20 years. 

    Ps. I keep trying not to think about how much money they gave up not renting it for those 20 years but I can’t. Ouch. 

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Mary Jay, There's actually no statutory requirement for income or holding period.  Vacant land or property that you have held for appreciation would qualify.  

    Where it gets fuzzy is if you never rented or tried to rent.  But also used it for personal use.  In that event the IRS could say you weren't really holding as an appreciating investment.  You were holding it for personal use.  But if you're not using it for personal use then it should be easy for your accountant to agree with your investment intent.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    2Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    2y

    Thank you guys so, so, so much! You guys are amazing!!!

    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    2y
    Quote from @Dave Foster:

    @Mary Jay, There's actually no statutory requirement for income or holding period.  Vacant land or property that you have held for appreciation would qualify.  

    Where it gets fuzzy is if you never rented or tried to rent.  But also used it for personal use.  In that event the IRS could say you weren't really holding as an appreciating investment.  You were holding it for personal use.  But if you're not using it for personal use then it should be easy for your accountant to agree with your investment intent.


     Thank you sir! Your knowledge and wisdom is greatly appreciated by all of us!!!

    1Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    2y
    Quote from @Bill B.:

    Check with @Dave Foster or your favorite CPA but I BELIEVE even a vacant house can  qualify as an investment (like vacant land would). You probably don’t have to rent it out at all to qualify if it hasn’t been used as a vacation or 2nd home for the last 20 years. 

    Ps. I keep trying not to think about how much money they gave up not renting it for those 20 years but I can’t. Ouch. 


     Thank you so much Bill! I always appreciate your input! And as usually, you are absolutely right about everything! :) 

    1Reply
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