In Private Letter Ruling 8429039 (1984), the IRS stated that a holding period of two years would be a sufficient period of time for the property to be considered held for investment. 6 (1975)) but tend to agree with the IRS on disqualifying an exchange when the replacement property is disposed of soon after acquisition (See Black v. Courts have been more liberal on the issue of how long a Taxpayer must hold a relinquished property to prove investment intent (See 124 Front Street Inc. The IRS has also taken the position that if replacement property is disposed of immediately after the exchange, the property would not be viewed as being held for a qualified purpose (investment) under IRC section 1031. Though the Internal Revenue Code and Treasury Regulations are silent on this issue, a careful analysis of case law yields some principles that can be stated with certainty.įirst, the IRS has issued several rulings stating that if the property a Taxpayer seeks to exchange was acquired immediately before the attempted exchange, then the Taxpayer will be viewed as having acquired that property primarily to resell for profit, not held for investment. Identify more than three properties with an aggregate value exceeding 200% of the relinquished property, knowing that 95% of the market value of all properties identified must be acquired.Ī submitted purchase agreement is considered a sufficient identification.Īny properties purchased and closed within the 45-day time period qualifies as an identification.How long must property be held for investment in a 1031 tax-deferred exchange? This is one of the most commonly asked questions in an exchange transaction.Identify more than three properties with an aggregate value that does not exceed 200% of the market value of the relinquished property.Identify up to three properties of any value with the intent of purchasing at least one.If you wish to identify or purchase multiple properties, you must follow one of the following guidelines: A legal description or property address will suffice.
IDENTIFICATION RULESĪs an Exchangor, you are required to provide in writing an “unambiguous description” of the potential replacement property prior to midnight on the 45th day (after the close of the first relinquished property).
The exchange is completed in 180 days, not 45 days plus 180 days. Measured from when the relinquished property closes, the Exchangor has 45 days to nominate (identify) potential replacement properties and 180 days to acquire the replacement property.
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