Hidden Leverage: Qualifying Properties - What is a Qualified Use Property?

We are pleased to introduce Bill Exeter, CEO of Exeter 1031 Exchange Services, LLC as one of our nationwide investment expert partners. As a leading national provider of comprehensive 1031 Exchange services, Bill Exeter has contributed the following article from his 1031 Exchange Guidebook on our website to provide valuable insights for investors in the area of 1031 Exchanges.

You must adhere to specific 1031 Exchange requirements to qualify for tax-deferred treatment under Section 1031 of the Internal Revenue Code and Section 1.1031 of Treasury Regulations.

Real Property Must Be Held For Investment

Your relinquished properties and your replacement properties must satisfy the Qualified Use requirement. This means that your real property must be held for rental (income production), investment (capital appreciation), or be used in your trade or business to qualify for 1031 Exchange treatment. Properties that are not held for investment (e.g., you’re holding them for sale or for personal use) will generally not qualify for 1031 Exchange treatment. 

For example, property acquired for repair and maintenance (e.g., rehab) with the intent to sell (flip) once repairs are completed, will be considered property held for sale (not held for investment) and will technically not qualify for 1031 Exchange treatment.

Intent to Hold for Investment Use is Critical

You must be able to demonstrate that you had the intent to hold your relinquished and your replacement properties for rental, investment, or business use in the event you are audited. 

IRS Treasury Regulations do not require investment property to be held for any specific period of time for 1031 Exchange purposes. However, one of the best ways to demonstrate your intent to hold for rental, investment or business use is to do just that – hold your properties for a sufficient period of time so that you can easily prove your intent to hold for investment. Most 1031 Exchange experts and advisors recommend you hold property for 12 months to 24 months depending on the complexity of your transaction to clearly demonstrate your intent to hold for investment purposes. 

Holding your rental, investment, or business use property for less than 12 months does not mean that your 1031 Exchange will be disqualified, but it might be significantly more difficult to prove your intent to hold for investment purposes under an audit.

We hope the insights provided by Bill Exeter of Exeter 1031 Exchange Services, LLC in this article have been informative and beneficial. We at CBC Capital Advisors are proud to partner with such a distinguished firm. Together, we are committed to facilitating a seamless 1031 exchange process for our clients. Our collaboration ensures that you receive comprehensive support and guidance, making your exchange experience as smooth and efficient as possible.

For the past 40+ years it has been our honor and pleasure to help clients achieve their investment goals through commercial real estate investing through…

  • Our Exclusive Nationwide Investment Network
  • Off-Market Commercial Real Estate Opportunities – Nationwide
  • and Saving Taxes with 1031 Exchanges

To Learn More, Give CBC Capital Advisors a Call at (806) 793-0888

In addition, you can learn all about our exclusive nationwide investing network and capabilities by watching Rick Canup’s short investment presentation below.