Best Way To Structure 1031 Exchange W/ Retirement?
I wanted to make sure my thinking was correct on my plans to minimize capital gains as I convert 1031 properties to permanent residences.
1031 move in and live
property -> in for two years -> avoid $500K of capital gains
2nd 1031 -> move into
property property
My real concern is whether or not the second transaction is possible - can I move into a property that had previously rented out and has been a 1031 exchange property and not have to pay capital gains? I would not plan to move out of it, it would be my permanent retirement residence.
Do you own these 1031 properties now, or are you planning to acquire them?
If you already acquired these properties in a 1031 exchange, and the first one has been in service as a rental for at least one year, then you can convert it to your primary residence. After two years of occupancy AND five years of ownership, you can sell the property to take advantage of the $250K/$500K capital gain exclusion on the sale of your primary residence. You will not escape depreciation recapture, however.
Continue to operate the second property you acquired in a 1031 exchange as a rental until you are ready to sell property #1.
After you sell the first 1031property that you converted to your primary residence, move into the second property you acquired in a 1031 exchange and make it your primary residence. You can stay there forever, or defer the capital gains again if you sell after two years of occupancy and five years of ownership. Capital gains can be excluded, but depreciation will still be recaptured.
Quote:
On 2005-07-10 15:37, NewKidinTown2 wrote:
Do you own these 1031 properties now, or are you planning to acquire them?
If you already acquired these properties in a 1031 exchange, and the first one has been in service as a rental for at least one year, then you can convert it to your primary residence. After two years of occupancy AND five years of ownership, you can sell the property to take advantage of the $250K/$500K capital gain exclusion on the sale of your primary residence. You will not escape depreciation recapture, however.
Continue to operate the second property you acquired in a 1031 exchange as a rental until you are ready to sell property #1.
After you sell the first 1031property that you converted to your primary residence, move into the second property you acquired in a 1031 exchange and make it your primary residence. You can stay there forever, or defer the capital gains again if you sell after two years of occupancy and five years of ownership. Capital gains can be excluded, but depreciation will still be recaptured.
Great, that was very helpful and answered several questions. I do own both properties now.
Related to the second property - as far as "like property" goes, can I make an exchange between a rental property (selling it) and then buying a lot, build a house on it, rent it for a year, then move into it as above? (in other words, can I turn a lot into a rental unit through a 1031 exchange)
Thanks!
Yes, you can sell the rental property that you have described and buy vacant land. However, consult with your tax advisor about depreciation recapture. The 1031 exchange from the rental property into vacant land will defer your capital gain taxes but will not usually defer your depreciation recapture taxes because you have exchanged out of an improved, depreciable property into a non-improved, non-depreciable property.
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