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1031 exchange ? or not

Question: I have a single family residential that I'd like to sell and then use the proceeds to buy a 4-plex. I live in Southern CA. I have never reported the income from this rental and never claimed any expenses for it. I used to live in this home - for over 2 years - and would like to sell it within 3 years to take advantage of the 1031. My question is: can I now submit a 1031 exchange for this transaction? Or is there some type of paper trail that is needed to prove something? Can someone help? I have no idea of tax law or 1031's. Thanks everyone.

Reply to
kade714
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wrote

For starters, you should go back and file amended returns to report the income and expenses (including depreciation) on those years that you rented the property.

If you lived in the home as your primary residence for two of the five years prior to the sale, then up-to $500,000 ($250k if you're single) of any gain is tax free. Some of the gains however, the amount related to the depreciation taken or that should have been taken, will be taxable to you.

If you're out past that five year window, then all of the gain would be taxable.

You could do a Section 1031 exchange for like-kind property, meaning you sell the rental property and buy other investment/rental property as a replacement. Talk to a reputable firm in your area to advise you and handle all that, as the rules are very strict on timing and who holds the sales proceeds.

Reply to
Paul Thomas, CPA

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