What are the requirements to convert a 1031 exchange replacement property to a principal residence combining Section 1031 and Section 121 of the tax code to defer taxes?
Out of all the videos I've watched on 1031 this is the first one that explains this part of it so thank you very much it's exactly what I was wanting to know about
This is a very delicate and difficult question - especially when it comes into a Tax Audit. Generally speaking, this is a decision in which only a license tax accountant or attorney can give or make; and NOT you or I. The following is what both the spirit and the letter of the code seems to indicate. It is possible to convert an Exchange property into one’s principal residence after 2 full years of renting; but at the time of the Exchange. The IRS expects a taxpayer to Exchange and acquire a “Like Kind Investment Property”; to HOLD for INVESTMENT with no intent to convert into personal use. However, life can certainly change with no warning; i.e. illnesses or disabilities, perhaps financial hardships, or even family changes (I.E., such as death or divorce). These unplanned or unexpected or unforeseen changes may be a cause for conversion for personal use, I hope this helps clarify the subject.
My husband and I formed a FLP. A few of our properties title was under our FLP. Our residentail property which we lived for over 25 years was not. The residential property was under our personal names Two years ago, we sold one FPL property which was a rental. We exchanged this FLP property to buy our residentail property, so we stayed as renters. If I sell this residentail property ( PR) to take advantage of the tax benefits under this 121 tax code, can we claim our past years of stay as part of the 5 year requirement?
My question is once you are living the the stepped up house as a rental - in theory you should be able to deduct/itemize any repair costs, improvements, and depreciate it if it is in the titled name of the LLC. Is my understanding correct?
How about if you are living in a duplex you rent out other side. Can you live 2 yrs in one unit then 2 years in another principal residence while you rent out the other unit Can you use sec 121 for 100%??
Further more, the code specifically states that the replacement property needs to be purchased as "Like Kind", which means no intent to convert or move in.
I believe he forgot to include the number of years it was a rental prior to the 1031 exchange. That would drastically change the percentages mentioned.
If I'm understanding you correctly, prior to the 1031 exchange, it doesn't matter what it was because you didn't own it. Am I understanding it correctly?
My thought exactly: property purchased with a 1031 Exchange in 2006. Rented out for 12 years. Moved into the property as primary residence in 2018. Has been my primary residence for 5 years (it’s 2023). What is my tax liability relative to the 1031 Exchange?
I wandered if you can tell me how property taxes work if I move into my now rental property and use as my primary residence in Florida it’s true that property taxes get cut in half? Thank you
Thank you for the education, it is extremely valuable. I have a question that hopefully you can answer. I purchase a rental in California in 2019 for $470, sold it for $569K and I did a 1031. I want to my a million dollar home with a partner where the partner will own 30% which is 300K and I own 70% which is $700K, is this possible to do this?
Sir do you have a video about my situation: My primary residence for 7-8 years and rented until now which is May be 13-14 years. If I sale this rental house what happens to depreciation and capital gains? Is it help if I go there and live there? Thank you 🙏
What if I’m not able to rent it in the 2years ? What can happen if I have the intent to rent it but don’t find the right tenant move in for 8 years but I never rented it..
I had to move and rent a home in a different state over 5 years ago. I am now selling what used to be my primary residence to buy a home in the state I now live in. I did rent out my house for a few months but let family stay for free the rest of the time. Since I don't own any other primary residence, can I purchase a primary residence in a 1031 exchange?
if i move into a rental that was NOT purchased through 1031, does the prorate still applies? this is the scenario. I bought a primary residence and lived there for 2 years then rented it out for 5 years then moved in to the house and lived there for 2 years and sold it.
1031 doesnt have to be equal or greater value. It can be any amount, its just that you would be on the hook for cap gains tax for the difference. Also it can be multiple properties not just one.
For a second home or vacation home to qualify for a 1031 exchange under IRS safe harbor rules, it must be owned for at least 24 months prior to the exchange, rented out at a fair rental rate for 14 days or more each of those two years, and occupied for personal use for 14 or fewer days each year, or no more than 10% of the number of days rented during a 12-month period
1031 rent 2 yrs, can then make it primary residence, if line in it for 3 yrs, can get 60% tax free under Sec 121, but must pay 40% capital gains, if line in house longer get more tax free
It is still correct. If you ever think of doing a 1031, I would highly recommend Paul. He has done two of mine and he is excellent. He moved on to a different company, but he is not hard to find.
Was it a rental first? If you moved into it in 2009 or after as your principal residence (that is when the law changed), then you would not have to pay taxes on 10/12ths of the capital gains when you sell. You will, however, have to keep track of the amount of tax you saved when the home had depreciation during the 2 years it was rented (even if you didn't claim it). That will be taxed at regular income rate. I am not a tax person, just interested in the topic.
@@QueenYak No, it's fractional and asymptotic. Every year you live in it reduces the percentage that's taxable, but it will never go zero. If you live there 8 out of 10 years, your taxable base is the inverse of that - 20%. 18 out of 20 years, it's 10%. 38/40 its 5%, etc...
