Property Exchange Agreement Form In Massachusetts
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FAQ
Under § 1031(f)(1), a taxpayer exchanging like-kind property with a related person cannot use the nonrecognition provisions of § 1031 if, within 2 years of the date of the last transfer, either the related person disposes of the relinquished property or the taxpayer disposes of the replacement property.
Section 1031(f) provides that if a Taxpayer exchanges with a related party then the party who acquired the property in the exchange must hold it for 2 years or the exchange will be disallowed.
Again, there is not a tax code mandate of one year, but it may be that the IRS would like to see at least a one-year hold. The only minimum required hold period in section 1031 is a “related party” exchange where the required hold is a minimum of two years.
A 1031 exchange agreement is a tax deferral strategy that allows individuals or businesses to sell an investment property and reinvest the proceeds into a like-kind property, without incurring immediate capital gains taxes.
First, sell your investment property and acquire a future primary residence, second home or personal vacation property as the Replacement Property in a 1031 Exchange. Second, rent the property for at least 14 days during each of the first two 12 month periods after the exchange.
If you decide to sell your short-term rental property in the future, you can use a 1031 exchange to defer paying capital gains taxes again. This means you can continue to reinvest your profits into new like-kind properties and grow your real estate portfolio without incurring a tax bill.
Real estate investors who want to move into replacement properties acquired via 1031 exchange should rent the property out for a minimum of two years to clearly demonstrate their intent that the property was purchased as an investment.
Detailed record-keeping and allowing your replacement property to have its season as an investment asset is imperative. The exchange can be disallowed if the IRS suspects that you completed the 1031 exchange, intending to move in immediately. It's best to wait at least two years.
There are certain rare exceptions to the two-year rule: if the disposition of the replacement property occurs “after the earlier of the death of the taxpayer or the death of the related person,” it may be acceptable to dispose of the replacement property within two years.
The 2-Year Holding Period Rule is part of the IRS procedures regulating 1031 exchanges. It stipulates that you must hold your Replacement Property (new property) for a minimum of two years after acquiring it.