How Long Do I Have to Hold 1031 Exchange Property?

This is a great question and one that is asked very frequently when investors are in the middle of a 1031 tax deferred exchange transaction. This question usually comes up in one of two situations when the investor wants to dispose of real estate and defer the payment of capital gain taxes through a 1031 tax deferred exchange transaction.

• The first is when the investor just acquired investment property and now wants to sell it and defer the payment of their capital gain taxes by structuring a 1031 tax deferred exchange.
• The second is when the investor has just acquired replacement property through a 1031 tax deferred exchange and wants to dispose of it already.

There are numerous versions and variations of these two examples, of course, but it clearly lays out the issue at hand. The issue is how long does an investor need to hold his or her investment property in order to qualify for the 1031 tax deferred exchange.

Once again, I must answer with It Depends!

Intent to Hold
There is no black and white answer here. The IRS and Treasury Department have never formally ruled on this issue.

The Treasury Regulations require that the investor have the intent to hold the property for investment. The investor would have to prove they had the intent to hold for investment should they ever get audited. A holding period of a few months would make it very difficult to prove that they had the intent to hold the property for investment, and property held for sale will not technically qualify for 1031 tax deferred exchange treatment.

Recommended Holding Period
It is for these reasons that most 1031 tax deferred exchange experts will recommend a holding period of at least 12 months and would prefer 24 months to ensure that you can demonstrate you had the intent to hold your 1031 exchange property long enough to qualify as investment property.