Section 1031 contains no fixed amount of time needed to qualify a transaction for tax-deferred status. Instead, Section 1031 requires that the taxpayer have the intent to have held the relinquished property for either an investment purpose or a business purpose at the time of the exchange to avoid a taxable exchange. The taxpayer must also intend to hold the replacement property as an investment or be used in a trade or business (business purpose).
The case law on Section 1031 follows a line of precedence where courts will attempt to determine what the taxpayer's original intent was at the time he sold his relinquished property and purchased his replacement property. The court applies a “facts and circumstances” test to objectively measure whether the taxpayer had a bona fide intention to hold each property as investment or business property at the time of the exchange. The taxpayer’s actions, written and oral communications, and tax filings, constitute evidence for examination if the Internal Revenue Service challenges the tax-deferred status of the exchange.
For a more thorough discussion on this subject go to our website: www.liberty1031.com and look up recent articles written on this subject.
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