Posted by ray@lcorn on July 24, 2007 at 15:34:34:
As a technical point, the simultaneous exchange is what was originally provided for in IRC Sec. 1031 dealing with like-kind exchanges. A later tax court ruling, known as the “Starker” case, led to the adoption of protocols in 1984 for the delayed exchange so popular today. (For a more detailed history of 1031 and like-kind exchanges, see Bill Exeter’s article at http://www.exeterco.com/History_Section_1031.aspx)
As a point of correction, the time periods for the delayed exchange are 180 days to close the replacement property, inclusive of the 45 day ID period to identify the replacement property. Both time periods run simultaneously, meaning the clock starts on the date of closing of the relinquished property. The total time permitted from start to finish is 180 days, with no exceptions.
The hold period is a separate issue from the procedural requirements, and addresses qualifying property. The code says “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.”
So the test for qualifying property revolves around the interpretation of “held for productive use in a trade or business or for investment…”. Since no minimum hold period is specified as a litmus test for “held…”, the question has historically come down to what constitutes an intent to hold for investment. In the end it is either a qualifying property or it isn’t, and if the latter the exchange would be disallowed in either a simultaneous or delayed exchange because of its non-qualified status. (see also, http://www.exeterco.com/holding_guidelines_for_1031_exchange_property.aspx)
That said, your point is valid and one I didn’t think about. The simultaneous exchange would offer another alternative in working with a buyer, though at the cost of directly involving the buyer in your choice of replacement, and possibly creating conflicts with the seller of the replacement property.