The myriad rules taxpayers must follow when completing 1031 exchanges can be overwhelming. Real estate developers often prefer to avoid this complex analysis, thinking most of their work involves nonqualified inventory. However, this common misconception has caused many developers to miss out on the sophisticated exchange techniques that could help them convert nonqualified inventory into qualified property — and significantly minimize their tax liability.

The critical hurdle that developers must clear in 1031 exchanges is establishing the held-for-investment intent for the properties they are relinquishing and acquiring. To meet this requirement, a developer’s intent of ownership must be considered. Although the IRS has not specified a minimum time period a taxpayer must hold a property to qualify for exchange treatment, one year is the general guideline that most tax professionals follow. A more aggressive tax professional may assert that a one-year holding period is no