1031 to primary question
Have a question ? I recently 1031 transfered to another property ( a rental to a rental) I would like to swap my primary residense to a rental and move to the rental I did the 1031 transfer on.
what should be the time limit if this could be done,or even if it is allowable ?
I might also wish to sell my primary residense, take the cash and just pay off the 1031 transfered property to become my primary residense. (the 1031 did not generate any "boot"
What, if any, problems do you forsee in this scenario. your insight to this is most helpful, thanks 
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On 2003-03-18 14:59, mac-homes wrote:
Have a question ? I recently 1031 transfered to another property ( a rental to a rental) I would like to swap my primary residense to a rental and move to the rental I did the 1031 transfer on.
what should be the time limit if this could be done,or even if it is allowable ?
You cannot 1031 exchange a primary residence to a rental. However, you can 1031 exchange from a rental to a rental. So, you will have to convert the primary residence to a rental and probably have it as a rental for at least one tax year to avoid the IRS "stepping the transactions together" (talk to your tax advisor about the "step transaction doctrine" regarding the 1031 exchange). However, if you want to be really safe, wait 3 years that is the general statute of limitations period.
Likewise, you should keep the rental rented out for at least 1 year before moving into it as your primary residence to avoid problems under the 1031 exchange.
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I might also wish to sell my primary residense, take the cash and just pay off the 1031 transfered property to become my primary residense. (the 1031 did not generate any "boot"
If you decide to sell your primary residence, but have not lived in it for at least 2 years out of the last 5, the gain will be taxed at long term capital gains rates (up to 20% federal tax rate) if you owned the property for at least 1 year and if not then at the short term capital gains rates (up to 38.6%). If you have lived in the primary residence for at least 2 years, you might be eligible to exclude up to $250,000 of gain (or $500,000 if married) from all federal income taxes. Ask your tax advisor to discuss with you the requirements of Internal Revenue Code Section 121. However, if your primary residence was previous rented out, any gain attributable to depreciation will not be eligible for the Code Section 121 $250k/$500k gain exclusion.
Hope that helps,
Taxjunkie
Thanks Taxjunkie for that reply, I will check with my advisor , always helpful to visit this site.
You can convert your replacement property acquired in your 1031 exchange transaction to your primary residence, but you must be careful. The most important element when doing a 1031 exchange is that you must have the INTENT to hold the relinquished and replacement properties for investment, income production (rental) or use in a trade or business. The code and regulations do not spell out what time frame is required, so they leave it up to you. If you convert the replacement property to your primary residence too quickly they will challenge your intent to hold the property for income production. It boils down to how conservative or aggressive do you want to be. If you are very conservative then you should wait the three years plus as previously suggested. If you are aggressive you can look at less than one year, but I think you are taking a huge risk. I would rent it for at least one year and straddle two tax years.
Hope this helps.
[addsig]