1031 Exchange: How long do you have to rent?

[Macy Bassler]

For an investment property to qualify for a 1031 exchange, is there an established minimum that you have to have a tenant in the house before you sell the home and exchange for the next investment property? For instance can you rent it out for 6 months and then do a 1031 or is that illegal/toeing the line of being primarily a flip (if you had in some way artificially appreciated property) and therefore not qualifying for the 1031 exchange?

[Dave Foster]

@Account Closed is saying.

1. There is no statutory holding period.  The facts and the circumstances that demonstrate your intent are the rule.

2. From 1996 when the statute was tweaked to sometime in the last couple of years the mantra was "one year and one day".  There was no magic in this other than the following circumstances that would apply.

     a. One year ownership usually turns the gain from short term to long term capital gain (which feels longer).

     b. One day ensures that the property has

       -been reported on two consecutive tax returns

       -Been owned across both two tax years and two calendar years

Most of the one year and a day noise was an attempt to thread the needle of several vague revenue and case rulings.  And only in the last couple years that the "2 year minimum" surfaced.  But it is based on the same info above - just more conservative.  

But the standard truly is your intent and how you can demonstrate it.  Not the holding period.