1031 Exchange on appreciation only?

[Kenji Ignacio]

So I'm a little confused whether this can be used for a 1031 exchange. The current owner of the property had the place quit claimed to him several years ago. From the time of ownership, it was never resided in by the owner. It was rented out, but the owner isn't able to show any rent history on it since he wanted to avoid paying taxes. The way he wants to classify this in the exchange is that he "held the property for appreciation." Again, he never lived in it and wants to exchange that condo for a duplex or multifamily property.

[Frank Chin]

As far as I understand it, he qualifies for a 1031. What he needs is a rental where he sells, and reinvests in another rental. He should invest in a larger property to avoid any capital gains or recapture. Having a verifiable rent history is not part of it, unless he absolutely reports none of it on his income taxes, and has to show it's really a rental. In that case, he ought to pay some capital gains to stay out of trouble. No one is going to believe it's kept vacant for at least the last two years while he's thinking about it.