1031 Exchage
Is there a limit on when a 1031 property can become a primary residence? We are going to do a 1031 exchange for a property in FL for a nicer condo on the beach. But, we are planning to move into that condo in couple of years. Are there any tax issues with moving into this place? How are the gains treated if we decided to sell it after living in the condo for 2+ years? Is there a period of time for which this condo should be in rental to statisfy "Investment" requirement of 1031 exchange?
Thanks
The tax code and regulations are very clear that you must have the INTENT to HOLD the property you are selling and then the property that you are buying for rental, investment or use in your business in order to qualify for 1031 exchange treatment. The problem is that they do not define INTENT nor time to HOLD. The majority of tax advisors recommend holding property as investment or rental property for at least 12 months. When converting to a primary residence I would even consider a longer period - say 18 to 24 months - just to make sure you are in the clear. After that, you can convert the property to a primary residence and live in it as your primary residence for at least 24 months and then sell it tax free pursuant to Section 121 of the tax code. You can EXCLUDE up to $250K in capital gain if you are single and up to $500K in capital gain if you are married filing a joint income tax return (section 121 exclusion).
Here is an article on this site that helps explain the holding requirements:
http://comm.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=572&mode=thread&order=1&thold=-1
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