When can you relist a newly purchased property in a1031 exchange?

[Jennifer Roberts]

I had a question that my QI couldn't really answer. Before I bug my poor CPA again, I'm wondering about the collective consensus of this group. How long do I need to keep a newly purchased property that I exchange in a1031 before relisting? Has anyone had experience with this? Another way to say it, if I find a place that I can park my money that doesn't have the best return, how long do I need to wait before relisting?

[Michael Plante]

IRS Code Section 1031 outlines the many different rules regarding 1031 exchanges. However, the code does not specifically state an exact amount of time exchangors must hold onto their replacement assets. What the code does state, though, is that an exchanged property that’s held primarily for sale does not qualify as a like-kind exchange. In other words, investors can’t sell one investment property, complete a 1031 exchange in order to defer capital gains, and then fix-and-flip the replacement asset.

Replacement assets must be acquired with the intent of holding them for investment properties. The IRS stated in a 2009 ruling that exchangors shall realize no gain or loss when exchanging one property that’s held for use in a trade, business or as an investment when that property is exchanged for another like-kind asset used for the exact same purpose.¹

Moreover, the IRS addresses what constitutes a “holding requirement” in the same ruling. Again, there’s no concrete length of time listed but rather language that addresses the exchangor’s intent:

“...An exchange of property will not be eligible for deferral of gain or loss under Section 1031 if the replacement property is determined to be held by the taxpayer for immediate sale, disposition, or for some other non-qualifying reason. The determination of whether the taxpayer has acquired replacement property for investment purposes is determined by examining the taxpayer’s intent and the surrounding facts and circumstances at the time such property is acquired.”Hello