1031 Exchange on Rental & convert to personnal residence later

I am in the process of doing a 1031 exchange with an apt with some profit and depreciation. I will be exchanging it for another rental (a single family residence). I then will move into the SFR in 2 - 3 years. Thus, I will be converting a rental to a rental to a personal residence. Is what I am doing considered legal within the 2 out of 5 year rule or is it not legal and thus owe capital gains taxes and recaptured depreciation? I have read several other threads on this group. but none of the topics exactly match or they were several years old. Thanks

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Reply to
Rick
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"Several years old" doesn't cut it because the law changed last fall. You now have to wait 5 years after the exchange before selling the property in order to claim the personal residence exclusion of gain; you owe tax only on the accumulated depreciation since May of 1997. Also, if you immediately occupy the home as your personal residence, there is no 1031 exchange. You can only exchange "like kind" property, and that means the replacement property must also be used for investment. How long you need to rent it out before you occupy it as your principal residence is a question of facts and circumstances. I think that if you wait until the statute of limitations on the year of the exchange runs out (April 15, 2009 for 2005 returns) you definitely don't have a tax problem. After a couple of years and no audit, you're probably pretty safe. Any less than that and you're taking a risk.

-- Tom Healy, CPA Boulder, CO Web:

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Reply to
Thomas Healy

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