1031 Exchange/Seasoning Requirements

[Lawrence Paul]

Hello again,

I plan on using the 1031 exchange in the coming years to upgrade from SFR to either 2,3,4-plex or a small commercial unit.

If I say 'season' my SFR property for 1 year so the income shows up as net gain or net loss, but then want to 1031 exchange my SFR into a 4-plex (more expensive)...

Is the 4-plex already considered 'seasoned' or will I have to wait an entire year to 'upgrade' my properties from SFR into a 4-plex type option?

Thank you!

[Lauren Speidel]

@John Warren Thanks for the mention!

@Lawrence Paul Section 1031 doesn't state that you must hold or season your property for any specific amount of time. Although most 1031 Exchange experts will recommend holding your property for at least 12-24 months to prove your intent to hold as rental income will be reported on at least two tax years. With that being said, things change and we've had some people hold for much less time but they have a good financial reason to sell. What's extremely important is that you can prove you had the intent to hold the property for rental income, appreciation, or use in a trade or business. If you are buying properties, improving them, and selling them then you probably don't qualify for Exchange treatment as your intent really is to sell the property. The fact that you are showing rental income on multiple tax returns for these properties will help in proving you had the intent to hold. Let me know if you have other questions!