How long do I have to own my property before I can exchange it?
The longer the better. Unfortunately, there is no safe holding period for property to automatically qualify for an exchange. Keep in mind, the property only need to be “held for investment” for it to be eligible for an exchange. Time of ownership is ONLY one factor at which the IRS looks at when determining if the property was “held for investment”. 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.
Some advisors recommend that Exchangers hold property for a minimum of at least twelve months. The reason for this is twofold: (1) A holding period of 12 or more months means the investor will usually reflect it as an investment property in two tax filing years. (2) In 1989, Congress had proposed a one year holding period for both the relinquished and replacement properties. Although this proposal was never incorporated into the tax code, some believe it represents a reasonable minimum guideline.
Can I sell my duplex and purchase bare land?
Certainly. Properties involved in an exchange need to be held for either productive use in trade or business or for investment. Holding land for its future appreciation would be considered held for investment.
Can I purchase my replacement property first?
Yes; this requires that you do a reverse exchange however. The reverse exchange ‘may’ be an option provided you have the ability to structure the reverse exchange according to the safe harbor guidelines.
Can I move into a rental that I originally bought as part of 1031 Exchange?
Yes. However, please keep in mind that the property must first qualify for the 1031 Exchange. In determining if the property qualified the IRS will look at several factors including how long it was rented for an also your “intent”. If the IRS feels your original intention when the property was acquired was to use it as a primary residence, you may have your exchange disqualified.
Do I have to reinvest ALL of my cash/equity?
No. However, any cash (equity) that is not reinvested in real estate will be taxable (and is known as cash boot).
How long do I have to complete my exchange?
180 days. However, also keep in mind you will be required to identify your potential replacement properties on day 45 of your exchange. Your timeline starts when you close escrow on the property you are selling.
Can I get an extension on my day 45 or day 180 deadlines?
No. The IRS only issues extensions in cases of a Presidential Disaster Declarations and the exchange has to have been directly effected by the disaster.