Turning a 1031 Exchange into a Private Residence, Part 2

The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.

Turning a 1031 Exchange into a Private Residence, Part 2

When it comes to a successful 1031 exhange, sometimes patience works in your favor.

If you can handle deferred gratification, you can use a retirement gambit to make an exchange that will alleviate some of your tax burden and add to your long-term gains.

When you’re thinking of retiring, you can work ahead to sell your investment property and use the proceeds for a 1031 exchange into your future retirement location. Rent out the exchange house for a minimum of two years, and voila, you can move into the exchanged property and claim it as your primary residence. You can sell your long term primary residence and take out your adjusted gross base, plus a $250,000 exclusion per person on the deed, shielding those amounts from taxation. For a savvy property owner, this can be a big windfall.

Question 1:
Hi,\nI am doing 1031 exchange for a reason to convert income property into prime residence.\nDo I have to rent out for some time (1 year, 2years?) new property before I move in and make it prime residence?\nAlso can you give me any link to legal publication on this matter.\nThank you,\nAnatoli S.

Answer:
You must rent the house out for two years. As intent is so important to the IRS in 1031 exchanges, that rental period is key. Take a look at excepted custom supported by IRS Revenue Procedure, 2005-14, which helps determine safe practices.

Question 2:
Hi we Just moved into one of our rental homes which we bought in 2004 as a 1031 exchange. Our intent is to live in it for two years, sell as our primary residence to take advantage of the capital gains savings. Has this law changed?

Answer:
You get an “A”!; you have the steps correctly stated, and the law has not changed. Also, each of you will be able to utilize a $250,000 exclusion from taxes.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

Marilee Hill has extensive experience in 1031 exchanges and real estate deals in general.As a broker who has managed her own properties, Hill now offers services and advice to clients to help them to achieve their goals.

Part of what has made Hill so successful, along with FINRA certification and other background, is her assertion that a lot of the real estate process is fundamentally about people. Hill says that “my clients’ success is my success” and this has served her well in helping others to complete real estate deals in a satisfactory way.

Get help from Marilee Hill to achieve a successful 1031 exchange and get more out of your real estate transactions.

Turning a Personal Residence into a 1031 exchange,...
Timing, Part 2