Posted by Dave T on November 21, 2002 at 20:34:59:
Technically correct, but you failed to mention that after an appropriate period of time an investment property acquired in a 1031 exchange can be converted to personal use without disqualifying the exchange.
Question about 1031 exchange of rental house - Posted by Kyle (OR)
Posted by Kyle (OR) on November 21, 2002 at 14:10:41:
My parents own a rental house in OR that they have had for many years It will be paid for in a couple of years. The problem is that it has increased in value a great deal and they what to be able to sell it when my dad retires in a couple of years. They also own a house that they live in, in WY. When my dad retires, they want to sell that house and move back to OR. May dad said that he can?t sell the rental house with out living in it for 2 year for the tax purposes. My mom doesn?t like this idea, because there in no way all her ?stuff? will fit in it. My question is this, if they are going to buy a house in OR anyway, can they sell the rental and then 1031 Exchange all the profits into there new home in OR. Then they could sell the house they are currently living in, in WY with out penalty (since they have lived there for more than 2 years). Am I right about this, or do they have to reinvest the profit from the rental into another income property? Thanks in advance. Kyle
Re: Question about 1031 exchange of rental house - Posted by Diane (TX)
Posted by Diane (TX) on November 21, 2002 at 16:47:13:
1031 applies to exchanges of property held for use in a trade or business or for investment, and the property has to be exchanged solely for like-kind business or investment property. Bottom line is that your parents can’t 1031 exchange all the profit into their new principal residence in Oregon, because a principal residence is neither business nor investment property.
yes provided that… - Posted by David Krulac
Posted by David Krulac on November 21, 2002 at 16:41:45:
the new house in OR becomes a rental/investment property.
1.So exhange the old OR rental for a new OR rental.
2. let some time move on, say rent for a 1 year lease
3. sell WY house and take $500,000 capital gains tax free
4. move into new OR rental and convert into a personal residence.
I am neither an attorney nor a CPA.
David Krulac
Central Pennsylvania
Yes and no - Posted by ken in sc
Posted by ken in sc on November 21, 2002 at 16:39:34:
Yes, they can sell the old rental house for the house they are going to live in in Oregon. But the way to make this a valid exchange (investment property exchanged for investment property) is to rent the new house in Oregon for awhile so as to show it as a rental investment property on their tax returns. There is no set amount of time that it has to be rented, but I would suggest showing rental income for two tax returns.
If you do this you can sell the house in WY that they lived in tax free, and also trade all the equity in the rental house tax free into the next permanent residence. This would be a great move. They could just rent a real nice house for two years in OR while they wait. With the tax savings, they could likely afford a very nice rental!
Ken
PS - I am not an accountant. Get good advice! But I have done this exact scenario. Traded an old triplex for the house I live in now after renting it for two years.