Turning a 1031 Exchange into a Private Residence

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

The 1031 exchange process is really for the patient person – it’s a slow process that, done the right way, pays off big in the end. It’s not about making a quick dollar; it’s about a deliberate, long-term real estate strategy that helps you to maximize gains.

If you are the patient type, you can make your real estate assets work harder for you. Say you have a personal residence and an investment house. With 1031 exchange planning, you can sell your investment property and perform a 1031 exchange with a property in the place to where you will be retiring. After you rent out the exchange house for a minimum of two years, you will be able to use the 1031 exchange rule to move into the exchanged property and use it as your primary residence, while selling your former primary residence. What do you get? You take out your adjusted gross base plus $250,000 for each exclusion gain, and pay tax only on what’s left.

Question 1:
Can you sell an investment property and purchase a property to live in and still defer tax?


If you use a 1031 exchange to purchase a property to live in, you must first rent out the property in an “arm’s length” transaction for two years – and then you can move into the property. The former rental’s basis is now the basis of your new personal residence with time restrictions on how long you must remain in the now personal residence to later claim such.

Question 2:
How long do you need to rent out a new home that was bought with 1031 exchange money before you can move into it? Is 6 months enough time to not get penalized

The rule on this is two years. To be safe, wait two tax years. Otherwise, the entire exchange could be disallowed, defeating the purpose.

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

Marilee Hill came into the securitized 1031 exchange market with a lot of experience in land sales, office and retail sales and leasing. She’s a professional with a history of brokering, managing properties, and helping clients to make deals. She understands the human side of the business and how to make deals happen. She also knows the rules – the side of the process that’s technical and sometimes unforgiving. Real estate holders who want to work with a professional, knowledgable and dedicated broker and advisor work with Marilee Hill! Check out more of her wisdom on the 1031 process and everything else related to current real estate markets.

Talk to Marilee Hill about your next 1031 exchange deal.

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