What property will qualify for 1031 Deferred Exchange treatment?
The Exchange Party must hold the Relinquished Property for investment or for “productive use in their trade or business” to qualify for Section 1031 treatment. The Exchange Party’s purpose in holding the property, rather than the type of property, is the critical issue. The following are examples of qualifying properties: • Raw land • Farm land • Commercial • Residential rental • Industrial property • Office building • 30-year leasehold interest, and • Percentage interest in investment property The intent to hold the property for personal use will prevent the property from qualifying for Section 1031 treatment. Therefore, second homes will not qualify for Section 1031 treatment unless the property owner changes how the second home is treated or used. For example, a taxpayer could “convert” his second home to a valid exchange property and establish this intent by properly renting the property and holding it as a legitimate rental property. Consultation with a tax advisor is important wh
