In order to qualify for a 1031 Exchange, the Relinquished and the Replacement Properties must have been acquired and "held for investment or for use in a trade or business." The amount of time that the property must be "held for investment or for use in a trade or business" is not specified in either the Code or the Regulations. Exchange Professionals generally recommend 1-year. The IRS has ruled that 2-years was adequate in a private letter ruling (Ltr Rul 8429039) but this was not made mandatory.
The position of the IRS is that if a taxpayer's property was acquired immediately before an exchange, or if the Replacement Property is disposed of immediately after an exchange, the property was not held for the required purpose and the "held for" requirement was not met.
The taxpayer acquires Replacement Property and immediately lists the property for sale, the IRS will interpret the intent to acquire the property for resale instead of for investment purposes.
The taxpayer receives the Relinquished Property by deed from a partnership and immediately proceeds to sell/exchange it.
The taxpayer acquires Replacement Property and immediately converts the property to a personal residence.
The taxpayer acquires Replacement Property and immediately transfers the property to a corporation, partnership or LLC.
A cushion of time between events such as these is desirable in order to reduce the risk of possible “held for” issues in an exchange. In any event, the burden is on the taxpayer to support his compliance with the “held for investment or productive use in a trade or business” requirement.