1031 Exchange Hold Time Requirement
Posted by Andy Gustafson on Fri, Apr 23, 2010
A common 1031 exchange question is whether there is a hold time requirement? How long does the old property need to be held to satisfy the "proper intent" of holding the property for productive use in a trade, business or investment?
There is no hold time specified in the 1031 code. A one year hold time is conservative suggestion, the longer the better. The shorter the hold time the more substantial the facts must be to support the "proper intent." All exchanges have an intent and a set of facts. Hold time is one fact of many facts supporting intent.
Congress attempted twice to legislate a one year hold time but was not successful. A rule of thumb is to hold the property for two taxable years. The IRS has stated that two years is sufficient.
Vacation Home Safe Harbor
Revenue Procedure 2008-16 applies to vacation home exchanges after March 10, 2008. The Internal Revenue Service will not challenge whether the vacation home qualifies as property held for the "proper intent." to qualify for the safe harbor, the investment property:
- must be held for 24 months prior to the sale and in each of the two 12-month periods: (1) the Exchangor rents the relinquished property at fair market rental for 14 days or more; and (2) the Exchangor's personal use must not exceed the greater of 14 days or 10% of the number of the rentals days for that period.
- replacement vacation home must be held for 24 months after the purchase and in each of the two 12-month periods: (1) the Exchangor rents the relinquished property at fair market rental for 14 days or more; and (2) the Exchangor's personal use must not exceed the greater of 14 days or 10% of the number of the rentals days for that period.
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