How soon can I 1031 a property after purchase?

Question

Hello BP,

I am new to the concept of the 1031 exchange. I owned one of my rental building for more than 2 years and another one for 3 months, I am wondering how soon could I start the 1031 process for them. Thanks BP!

Dave Foster · Answer

@Bryan Pham, it all depends on why you purchased them - what was your intent?  Why you are selling them - what made you change your mind?  And how can you demonstrate that.  There is no statutory holding period.  But your intent must have been to hold for investment use if you want to do a 1031.

The article that @Heath Ryans references is one great way to demonstrate you did not buy the property just to resell.  You weren't trying to sell and did not have the intent to resell but you got an unsolicited offer you couldn't refuse!  Other ways to demonstrate your intent could be simply what your normal business practice is.  Emails with your professionals that speak to that intent.  actually producing reported revenue (although this is not a statutory requirement either), how you use the property, and of course how long you've held it.  Most folks feel good at anything more than a year.  But your individual circumstances could dictate a shorter (or longer) period in order to justify your sale.

I'd say on the first property you've got no issues at all as long as you weren't trying to sell it the entire time.  As far as the other property much is going to depend on why you're selling now.  You've owned it so that it is reported on two tax years and across two tax years which is one of the court case decisions of an appropriate time (not the appropriate just an...).  So the facts of the case and how your accountant feel about it will inform your decision.

Heath Ryans · Answer

@Bryan Pham

Check out this article. I believe it'll answer your question

https://www.biggerpockets.com/blog/unsolicited-off...

Alina Trigub · Answer

@Bryan Pham Since you're exploring 1031 options, keep in mind that in addition to go forward the traditional way - sell first then buy, you can also do it backwards - identify your replacement property then sell your existing one as long as it it within the IRS allowed time-frame. Look into Reverse Exchange for more details.

Bryan Pham · Answer

@Dave Foster Wow, that was a great response. I definitely got all the answers I needed in that one post. An large multifamily opportunity came my way that I couldn't refused. I knew that I would only rather have one or the other, 16 units or 50+ units, right now I am definitely exploring the options.

How soon can I 1031 a property after purchase?

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