Letter of intent on new property

[Wendy Van Camp]

Hi, 

I want to do a 1031 exchange on an investment property I will have held for 2 years as of 4/1/18.  

First, should I wait until after that date to enter into a realtor contract to sell the property to insure that I get the presumption that my intent has been to hold it as an investment property?  It was previously my primary residence before renting it out.  

Second, I have identified a property that I would like to acquire with the proceeds of the exchange.  If I enter negotiations and submit a letter of intent to the sellers BEFORE the relinguished property is under contract, will that invalidate the 1031.

Thx!

[Dave Foster]

@Wendy Van Camp, There's no statutory holding period.  Two years has been mentioned in several forms by tax court but that two years has encompassed two full years, over two tax years and in two calendar years.  So the line is plenty gray that I don't think you have issues with listing to sell after 22 months.   Most folks feel comfortable with anything over a year.

Also, the statutory order of the 1031 is sell followed by buy.  Going into contract for the purchase before your sale does not hurt you at all.  In fact it may strengthen your case.  You didn't intend to sell but found the perfect replacement property .....

@Josiah Collins, Since Wendy qualifies for both the 121 and 1031 she can do a 1031 on the amount over the $500K exemption and get the best of both worlds.  She gets tax free from the primary residence exemption.  And tax deferred on the rest of the gain and depreciation.