When you’re doing a 1031 exchange you need to walk like a duck and talk like a duck so that the IRS interprets your 1031 exchange as being a qualifying exchange. What we mean by “talking and walking like a duck” is that you have to hold your properties involved in a 1031 exchange for a qualifying purpose which is investment or business purposes.
Many clients think in the indeterminate long-term that they may want to convert their replacement property into personal use down the road. Well, for the first two years after you acquire that property, it may be a good idea to rent it out or otherwise hold it for investment or business purposes, and not convert it to personal use prematurely because you want to be able to substantiate that you had the right intention with the property. There’s really no way to know what’s really going on in a person’s head so the IRS has to interpret what you do with the property. Renting out the property, using it for investment or business purposes for a substantial period of time is probably the best way to prove that you had the right cognitive intent.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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