Whether or not you should purchase property in another area is something only you can decide. As for your tax question, you should not be taxed if you do another 1031 exchange even if the house you purchased in August has gone unrented.
The requirements under Internal Revenue Code Section 1031(a) (1) are as follows: "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."
Your intent was to productively use the vacant property. The IRS should not hold it against you that you were unable to rent it. Furthermore, there is no required holding period for property acquired in a tax-free exchange. Therefore, if you decide that your real estate investment dollars will be more productive in another area, you can do another tax-free exchange into new real estate.
Kevin Just, CPA, is the managing partner of Just, Gurr & Associates. You can reach him at (408) 271-2200.
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