Intent to Hold for Investment – Reesink v. Comm.
In a recent Tax Court case, Reesink v. Commissioner, (April 23, 2012) T.C. Memo 2012-118, husband and wife purchased a residential house as a replacement property with the intent to rent the property. Unfortunately, the Reesinks were unable to find a tenant and obtain the rent they wanted, so they decided to sell their current residence and move into the rental home that they acquired in the 1031 exchange. They moved into the rental home only 8 months after it purchased in the tax deferred exchange. Nevertheless, the Tax Court found that the Reesinks intended to hold the rental property as an investment at the time they engaged in the 1031 exchange.
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1031 Basics: How Long to Hold
At Asset Preservation, Inc., we are often asked “How long do I need to hold my property to qualify for a 1031 exchange?” As explained in the full article, the question ‘how long to hold’ is not really the right question. Although many tax advisors will say that the property should be held for two years or more, that is only a partial answer and does not cover all cases. A shorter holding period will work in some cases given the right facts and circumstances.
Private Letter Ruling 201216007
PLR 201216007 addressing related party and other issues was released by the IRS on January 9, 2012. This PLR reaffirmed many of the recent positions taken by the IRS and indicated that a small amount of taxable boot received by a taxpayer purchasing a replacement property from a related person who is also exchanging will not disqualify the exchange. In this PLR, the IRS noted that the amount of taxable boot was less than 5% of the taxpayer’s gain.
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Rent Stabilization Challenge Dismissed in New York
The U.S. Supreme Court dismissed a case orginally filed in 2008 against rent stabilization in New York City. The U.S. Supreme Court said they would not hear a lawsuit that challenged the constitutionality of New York City’s rent stabilization law enacted in 1969 that protect tenants from sharp increases in rent and guarantees tenants thate right to renew their leases. In the case in question, Harmon vs. Kimmel, 11-496, the property owner argued that the rent stabilization of their six apartments in New York City was “an unconstitutional taking of their property.” According to the Harmon’s lawsuit, the tenants in the rent stabilized apartments pay rents that are about 60% below the current market rates. New York State and City officials have defended the rent regulations as necessary to respond to a housing shortage and as a way to prevent “rent profiteering.” The Court upheld rent regulations with a unanimous ruling in a 1992 case regarding a mobile-home park in Escondido, California. The justices in this case determined that the regulations of the terms of a lease did not amount to the type of complete government takeover of property that is barred by the takings clause.
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