December isn’t just the season of celebrations, it’s also the season of smart planning for real estate investors. If you’re thinking about selling investment property in 2026 and want to position yourself for a smooth 1031 exchange, now is the perfect time to get organized.
Here are 10 simple, high-impact steps investors (and their advisors) should complete before December 31 to protect documentation, strengthen “intent to hold for investment,” and avoid unnecessary headaches next year.
1. Confirm Your Property's "Intent to Hold for Investment"
The IRS cares deeply about intent, not just timelines.
Before year-end, make sure you can demonstrate that your property is being held for business or investment use, not personal enjoyment.
Good indicators of investment intent include:
- Collecting rental income
- Advertising for tenants
- Making improvements
- Reporting depreciation
- Documenting business use in your tax filings
If you’ve used the property personally (especially vacation rentals), tighten up those boundaries going into 2026.
2. Gather and Organize Your Documentation
December is the perfect time to get your files in order.
Focus on:
- Purchase closing statement
- Rental income/expense records
- Improvement receipts
- Loan payoff information
- Depreciation schedules
- Lease agreements
- Proof of investment use
You’ll need these for your CPA and for planning your exchange structure.
3. Review Depreciation and Depreciation Recapture
Depreciation is one of the biggest tax considerations in a 1031 exchange.
Before year-end:
- Review how much depreciation you’ve taken
- Confirm your adjusted basis
- Understand your potential recapture exposure
Your CPA can help you determine whether depreciation timing affects your 2026 selling strategy.
4. Evaluate Whether You Missed an Exchange Opportunity in 2025
Sold something earlier this year and didn’t exchange?
Talk to your CPA now about:
- What gain you’ll recognize
- Whether the sale affects a future exchange
- Adjustments that may help you going into 2026
Even if it’s too late to defer the gain now, planning can help you avoid the same outcome next year.
5. Consider Your Holding Period
While the IRS does not have a fixed minimum holding period, the industry’s safe norm is 12–24 months.
If you purchased a property in 2025, you may want to:
- Continue treating it as an investment
- Avoid personal use
- Ensure records support investment activity
This helps future exchanges stand on firmer ground.
6. Review Any Frustrated Exchanges
If an investor attempted an exchange this year but didn’t identify within 45 days, December is the time to:
- Review the resulting tax impact
- Confirm whether cash was received this year or next
- Determine whether installment sale rules apply
This is a key year-end CPA conversation.
7. Evaluate 2026 Dispositions & Ownership Structure Planning
Before year-end, take time to assess both what you might sell in 2026 and how you currently hold title, as these factors can significantly impact your exchange strategy.
Consider:
- Which properties you may dispose of in 2026 and whether they are strong exchange candidates
- Whether your current ownership structure supports your goals (individual, LLC, TIC, partnership, etc.)
- Whether any restructuring should begin now to support future planning
- Whether partners or co-owners are aligned regarding a potential 1031 exchange
Making strategic adjustments before year-end can help avoid the last-minute scramble that often complicates exchange eligibility.
8. Plan Financing Ahead of Time
Debt replacement is a common sticking point in 1031 exchanges.
Before January:
- Review current loan balances
- Talk with lenders about 2026 options
- Confirm whether you want to increase leverage, decrease leverage, or stay flat
This helps avoid accidental “boot” due to debt relief.
9. Loop in Your CPA and QI
Your CPA can help you:
- Estimate potential gain
- Review depreciation schedules
- Confirm basis
- Evaluate whether a 1031 exchange is appropriate for 2026
Your Qualified Intermediary can help you:
- Understand exchange requirements
- Clear up misconceptions
- Prep documents before listing
- Avoid common timing pitfalls
A 10-minute conversation now can prevent a year’s worth of issues later.
10. Set a Preliminary 2026 Selling Timeline
Even if you’re not ready to list, think ahead to:
- When you might sell
- When replacement property shopping should begin
- Any seasonality that affects your market
- Whether Q1, Q2, Q3, or Q4 offers the best timing for your goals
A rough timeline now becomes a strategic advantage later.
Final Thoughts
A 1031 exchange is a powerful tool but the investors who benefit the most are the ones who prepare early. December is the perfect moment to:
- Review your documentation,
- Revisit your investment intent,
- Tighten up year-end records,
- Talk with your CPA,
- and make a plan for 2026.
Taking these simple steps before the ball drops helps ensure that when next year’s opportunities come around, you’ll be ready.
If you want help planning ahead for a 2026 exchange or want us to review your situation we’re here for you.