1031 exchange hold requirements

Omaha, NE · Member since 2017 · 50 posts · 29 votes

I cannot find any hold time requirements for real estate. Does anyone know of any cases or IRS restrictions on using the benefit of a 1031 to flip a property you've held for under 2 months?

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Christopher Phillips

Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes

@Joe Lambert

Comes down to intent. You can't use 1031 exchanges for flips held for 2 months.

If a property was purchased for inventory to be flipped, you can't use a 1031 exchange.

The property must have been purchased for the purpose of holding as an investment and should be held for at least 12 months or more. It would have to be sold in exchange for an other investment. So, you wouldn't be able to sell it in exchange to get into a flip.

If you can't sell it, rent it out and hold it for 12 months or more, but even then, it's touchy because that wasn't the original reason for the purchase.

If you decide to rent it out and hold it, talk to a tax professional now so you can do everything the right way.

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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
7y
Originally posted by @Joe Lambert:

I cannot find any hold time requirements for real estate. Does anyone know of any cases or IRS restrictions on using the benefit of a 1031 to flip a property you've held for under 2 months?
If your intention is to flip, you cannot do 1031. Holding period is irrelevant.
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Christopher Phillips
Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
7y
@Joe Lambert
Comes down to intent. You can't use 1031 exchanges for flips held for 2 months.
If a property was purchased for inventory to be flipped, you can't use a 1031 exchange.
The property must have been purchased for the purpose of holding as an investment and should be held for at least 12 months or more. It would have to be sold in exchange for an other investment. So, you wouldn't be able to sell it in exchange to get into a flip.
If you can't sell it, rent it out and hold it for 12 months or more, but even then, it's touchy because that wasn't the original reason for the purchase.
If you decide to rent it out and hold it, talk to a tax professional now so you can do everything the right way.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
7y
@Joe Lambert, one of the most notorious cases was around 2014 I believe. An investor did a 1031 exchange on property he had owned for over 10 years. His exchange was disallowed. The back story was he was a developer who lost his window to flip the property when the crash came. So he held it. What caught him was the fact that the property was always listed for sale and never removed from the market. His intent for 10 years had been primarily resale.
Most folks feel comfortable with anything more than year. But there could always be circumstances where a shorter (or longer) period might be needed. Accidents happen. But not usually 4 or 5 accidents a year.
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