A client is a RE developer. He did a 1031 exchange in 2021 and acquired a property with intent to redevelop it.
The city now requires certain specs and low income units for the new development which will put the taxpayer in a loss. He wasn't aware of this when the property was acquired and wants to sell it in 2022, less than a year after he received it in the exchange. It will be sold at a loss from the purchase price, but the deferred gain from the 1031 will be released.
The general rule is to hold the acquired property for at least a year to demonstrate intent of the the property being for investment/business and not a flip, but I'm not aware of any regs that require a minimum holding period.
I suppose this will be a red flag for an audit, but was wondering if anyone else had a similar situation.
What documents would be needed in audit to demonstrate the intent and make sure the original exchange is not disqualified?