M id A tlantic Real Estate Journal — Financial Digest — 1031 Exchange — March 13 - 26, 2020 — 9A
Financial Digest / 1031 Exchange
ave you received con- flicting answers to the same question from By Lauren Speidel, Exeter 1031 Exchange Services, LLC Unraveling the Mystery of 1031 Exchanges: Property Holding Periods H
determine your intent to hold the property for investment. The issue is whether you can prove you intended to hold the property for investment. The easiest way to demon- strate intent to hold a property for investment is to do just that – hold the property for invest- ment long enough to demon- strate intent. The longer you hold the property the stronger your argument. Advisors Recommend Holding the Property for 12 Months or More Advisors often recommend you hold the property for at
least one year to prove intent. Holding the property for at least one year means you will straddle two tax periods mak- ing it easier to prove intent to hold. Dealers Do Not Qualify for 1031 Exchange Treatment Dealers, developers, builders will typically not qualify for 1031 Exchange treatment be- cause the hold the property for sale as “inventory” and not for investment. They may be able to qualify for 1031 Exchange treatment by segregating as- sets intended to be held as rental or investment from those
assets being held for sale. If your intent is to buy, rehab and sell or buy, build and sell property, you are holding the property for sale as inventory in your real estate business and will not qualify for 1031 Exchange treatment. Holding Property in an Entity Can Complicate Transactions The holding issue becomes more complicated when you hold property in an entity such as a partnership or multi- member LLC. The entity can sell the relinquished property, purchase replacement property
and qualify for 1031 Exchange treatment. It becomes more complicated when some inves- tors want to go separate ways. You should seek advice today to have time to prepare for a future 1031 Exchange trans- action. The longer you hold property prior to a 1031 Ex- change, the more conservative the course of action is and the easier it will be to prove that you have satisfied the Qualified Use requirement. Lauren Speidel is regional manager of Exeter 1031 Exchange Services, LLC Midwest Regional Office.
different 1031 E x c h a n g e Qualified In- termediaries? You are not alone. There are too many technical and complicated gray areas in
the 1031 Exchange industry. Tax codes, regulations and rulings leave many questions unanswered or unclear. These gray areas result is differ- ent interpretations, confusing opinions or misleading infor- mation. We will explain these differences through an article series entitled Unraveling the Mystery of 1031 Exchanges. Property Purchased Just Prior to 1031 Exchange The IRS has routinely said if you purchased the relinquished property just prior to a sale and 1031 Exchange you are holding the property for sale rather than investment. The IRS has also said if the replace- ment property is sold immedi- ately after your 1031 Exchange transaction it was not held for sufficient time to qualify for 1031 Exchange treatment. Little Definitive Authority on Holding Period While there is no actual hold- ing period required, the IRS stated in one Private Letter Ruling that a holding period of two (2) years would be suf- ficient to meet the Qualified Use Test, and numerous courts have taken similar positions. Intent to Hold is Critical The time you hold property, although important, is not the only factor the IRS will use to NorthMarq’s office negotiates acquisition financing of $900,000 EAST RUTHERFORD, NJ — Robert Ranieri, senior VP/ managing director of North- Marq’s White Plains office arranged acquisition financing of $900,000 for 189 & 193 Park Ave., a 3,644 s/f retail property located in East Rutherford. Financing Details: • 5-year term • 25-year amortization schedule • NorthMarq arranged the permanent-fixed loan for the borrower through its relation- ship with Columbia Bank .
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