Posted by dealmaker on April 09, 2005 at 20:26:07:
It’s funny, the tax code spelled out EVERYTHING in sec. 1031, to the day. Everything except this! IIRC the consensus was TWO TAX RETURNS (two years).
We did a 1031 to get a place in our “retirement destination”. We actually rented it for about 1 1/2 years, but three tax returns.
BTW, the big change in last October’s tax bill specified holding period/time as personal residence before selling with the $250K/$500K exemption. It’s 5 years holdin, 2 years as personal residence. So it’s 18 months to go for us, instead of 6!
The Treasury Regulations require that you have the INTENT to HOLD the property for rental, investment or use in a business. The burden of proof is on you to prove that you had the INTENT to HOLD the property for just that and the best way to do that is to hold it for rental property. The majority of tax advisors recommend that you hold the property as rental property for at least 12 months. The 12 month recommendation is no magic. About 10 years ago Congress was considering legislation that would have required a 12 month holding period. It never passed, but it gives us a good idea of what they were looking at. The 12 month mark is also the cut off between ordinary income rates and capital gain tax rates. The longer you hold the property as rental or investment property the better.
Those individuals who recommended that you move into it immediately and just not claim it as your primary residence and report “fake” rental income need to be very careful. This is tax fraud, and in case where you knowingly commit tax fraud can carry crimminal charges with it.