1031 Exchange to sell a newly built home and buy new property

[Neil Mammen]

Hi I'm building a new Single family residence on some land that I've owned. I want to be able to make sure that I can do a 1031 exchange on the property once it's completed. I've seen comments on doing the reverse (i.e. doing a 1031 to buy land and build on it), but I want to sell this to buy other rental property in a more lucrative area).

[Dave Foster]

@Neil Mammen, What I think you're wanting to do is to be able to sell that property when complete and perform a 1031 on it so purchase some other property.

The only way that property will qualify for a 1031 exchange is if you have the intent to hold it for productive use.  You have owned the land for quite a while but when you turned a shovel that changes the character of the land.  And the house and land become inventory - your intent in building the house/improving the land was to resell.  You're a builder.  And builders can't do 1031s.  

So if you want to you'll need to do some things that will demonstrate your intent - put a rentor in it (even if they have an option to purchase that is fine).  Hold it so that you can say your primary intent was not to resell but to hold.  Then once you feel comfortable that you've established that intent then you could do a 1031.  There's no statutory holding period.  But most folks feel comfortable at anything more than a year without some other mitigating circumstances.

Anytime there's construction involved there is going to be an automatic assumption that your intent is to sell not hold.  So you have to overcome that.