How Long Can I Delay Renting Property Involved in a 1031 Exchange?

By G. Scott Haislet, CPA, Esq.

I’m purchasing two properties in a 1031 exchange. How long do I have before I must rent them out? One is a vacation home that won’t be ready to rent until the winter. The other is a house that can be rented immediately but needs improvements.

As long as you are holding the property for investment purposes and are not using them primarily for personal use, you can wait to rent either property until you complete improvements. You note that one property is a vacation home. If you plan to occupy the vacation home yourself for at least a portion of the year, however, you must comply with certain rules in order to ensure that it retains its status as a 1031 exchange. Primarily, you should occupy the vacation home no more than 15 days of each of the two (fiscal) years after date of purchase. If you occupy the property personally for a longer time, it will be uncertain whether it will still be considered 1031-eligible.

Like-kind exchanges are complicated. You would be wise to seek legal advice or consult a CPA should you want to transfer your property in a future 1031 exchange. You can find out more about like-kind exchanges by listening to CalCPA’s Financial Empowerment podcast on the subject.

G. Scott Haislet, CPA, Esq. is a tax adviser, estate planner and real estate attorney.

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