Questions and Answers

17. What is the necessary holding period for your property to qualify for Section 1031?

  • A currently unresolved issue is: How long must a taxpayer hold property in order for it to qualify for tax deferred treatment? The question applies both to the relinquished property and to the replacement property. A proposed amendment to Section 1031 would have required that both the original property and the replacement property be held for at least one year in order to qualify for tax-deferred treatment. Although that proposal failed, the one-year period which has been a rough rule-of-thumb used by those dealing with exchanges will continue to be used until a specific holding period is established by law or regulation.
  • The holding period is a fact or circumstance to be considered in determining whether the Purpose Requirement has been met. For example, if a replacement property is acquired and then immediately sold, that might indicate that the property was in fact acquired for resale and is therefore dealer property and consequently cannot qualify for tax-deferred treatment.