Inquiry: A client recently wrote in with a question about a friend's option. He had held it for more than a year and had a considerable profit in it. He was told by two 1031 exchange intermediary companies that he could not exchange his option.
My Answer: I believe your friend has a good position on the ability to do a tax-free exchange for his option rights. It has been done successfully in the past. Some considerations are the holding period of the original option, the holding time of the replacement property, and the property optioned being mainly real estate and not a business or containing a large amount of personal property, like a hotel or restaurant. I would be happy to help him through the transaction and he should establish his exchange intent before he completes a sale of his option.
The Result: a SALE of the option AND a tax-free exchange into real estate. How'd you like that?