1031 Exchange Primary Residence conv to Rental Property
I have a SFH that was my primary residence for 15 months. I then moved across country for a new job and rented out the SFH instead of selling it. It has been a rental for the past 20 months. Now I would like to do a 1031 and purchase 2-4 homes in my local area.
I'll have an Adjusted Basis of 438,000 and the SFH will sell for about 550,000 leaving me with a Net Sales Price of about 515,000 (After paying commissions and such). I have a first loan of 320,000 and a 2nd of 28,000. That leaves me with a gain of about 77,000 and equity of 167,000.
The new homes that I purchase are about 200K each and I plan on a mortgage of about 160K each.
My question is if I can take any of the Gain out because the propety was once my primary residence? I keep reading about the Gain is taxable not the equity. Am I right in assuming that I will be able to pocket some of my equity as long as my replacement properties mortgage is equal to the mortgage on the sfh?
Thanks in advance and any other suggestions are welcomed...
Gmstaylor
Gmstaylor,
It appears to me that your former primary residence still qualifies for a partial capital gains exclusion. Based upon your period of ownership and use as your primary residence, I suggest that all of your potential profit on the sale of your former primary residence could still be taken tax free.
I am also reading between the lines here and assuming that you are seeking to use a 1031 exchange to shelter your capital gain from the sale of your former primary residence and purchase a new primary residence as a replacement property. Sorry, but a your primary residence is not eligible to participate in a 1031 exchange as the relinquished property, nor as the replacement property.
Consult your professional tax advisor for specific details.
Thanks Dave T for your comments.
I thought that I should be able to qualify for partial capital gains exclusion based on the fact that it was my primary residense within the 5 year rule. I've already purchased a new primary residence, so the gain isn't for that. I plan on investing my gain into several income producing properties.
Quote:
On 2003-03-12 11:27, gmstaylor wrote:
Thanks Dave T for your comments.
I thought that I should be able to qualify for partial capital gains exclusion based on the fact that it was my primary residense within the 5 year rule. I've already purchased a new primary residence, so the gain isn't for that. I plan on investing my gain into several income producing properties.
I think you may have misinterpreted some of Dave's advice. There is no requirement that the portion of the gain excluded from tax be reinvested into a new primaru residence. That was under the old rules in Section 1034 of the Internal Revenue Code. Under the new rules in Section 121, you can use the gain that was excluded from tax for any purpose ... heck you can blow it at the casino and it will still be tax-free.
Hope that clarifies the issue,
Taxjunkie