Minimum time to AirBnb/Short term lease before 1031 on sale?

Question

I was looking at a deal recently that was for multiple properties at once and one would have included something that turns into a flip.

The property was also in a fantastic area for Air BnB so the plan was to actually air BnB as is for a while, then do the work for the flip and sell it. I was trying to determine how long I would need to use it as an air BNB before I could potentially 1031 the sale of the building. I wasn't able to find anything on this though.

Does anyone know what is required, or have a general rule? It seems like there could be potential to use this kind of temporary rental structure to make things like a slow moving flip be 1031 eligible, potentially saving a lot of money over time.

Dave Foster · Answer

@Adam Sporinsky, You need to eliminate the word "flip" from your vocabulary entirely :)

Your intent with a flip is primarily to resell. 1031 qualifying real estate is purchased with the intent to hold for productive use in trade business or for investment. There is no statutory holding period. But of course the longer the better usually.

Most folks feel that anything over a year is pretty good to get the property on two consecutive tax returns. But there could always be mitigating factors that would allow for a shorter or longer period to demonstrate your intent.

Adam Sporinsky · Answer

Thanks @Mark Bookhagen and @Dave Foster

Mark Bookhagen · Answer

"In one private letter ruling (PLR 8429039), the IRS stated that a minimum holding period of two years would be sufficient. Although a private letter ruling does not establish legal precedent for all investors, there are many advisors who believe two years is a conservative holding period, provided no other significant factors contradict the investment intent."

Source: https://www.1031ex.com/how-long-to-hold-1031-exchange.php

Minimum time to AirBnb/Short term lease before 1031 on sale?

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