Turning a Personal Residence into a 1031 Exchange

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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 Personal Residence into a 1031 Exchange

IRS Rev Proc 2005-14 is a gift to investors … for example, a couple bought a home in 1979 for $150,000. Over the years, they made a total of approximately $250,000 in capital improvements.

In 2009, they rented the family home to an Embassy for two years. Upon sale a few months later, the couple planned to take out, in cash, $400,000 (adjusted gross base) + $500,000 (exclusion gain) for a total of $900,000, and they wanted to “1031” the difference of $1.2 million from their net sale price of $2.1 million. Without this Rev. Proc., capital gains and local Washington, D.C. income taxes would have been paid on that $1.2 million!!!!! This was the result – $900,000 of “do what you want to do” and $1.2 million producing retirement income. No TAXES paid!!

Question 1:
Can this ever be utilized for a personal residence ?

Answer:
The IRS gave us a present in Rev. Proc. 2005-14. Rent your home for two years, and then sell it. You can take out your adjusted gross base and each $250,000 exclusion – in cash. You can also perform with the remaining funds a 1031 exchange and pay no taxes. It’s fun to do the math to see how this works, for example, on a home purchased in 1985 for $180,000, now selling for $1.8 million, with two people on the title.

Question 2:
Purchased home in Camarillo, CA as primary residence Dec 2001. Due to military orders, moved to San Diego, CA. Aug 2005 Camrillo home became rental property. Purchased 2nd primary residence Dec 2005.\nNeed 1031 advise. Selling current rental & buying rental property in San Diego avoiding tax penalty

Answer:
You can perform a 1031 exchange with your Camarillo former primary residence, as you have not lived in it two of the last five years. I hope that since 2005, you have been depreciating your Carmarillo rental.

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

Marilee Hill has a lot of experience in how real estate works. Hill entered the 1031 exchange field nearly 20 years ago, with experience managing office and retail sales and leasing, and much more.

As a real estate broker, Marilee Hill understands the “human side” of the business. It’s more than just numbers – values like truth and transparency are important, and can make or break a deal. Hill’s motto is “My clients’ success is my success” and that tells you all you need to know.

Talk to Marilee Hill to figure out your next 1031 exchange deal.

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1031 Exchange