All property involved in a 1031 exchange needs to be held by the taxpayer for investment of business use. But can you live in a 1031 exchange property at all? That’s the question we’re diving into today in this article.
Property Held for Investment Use
As we’ve discussed many times before on this blog, you can only do a 1031 exchange on property that is held for investment or business use. Property that you hold primarily for personal use cannot be utilized in a 1031 exchange. So your primary residence would generally not be accepted as qualified property in a like-kind exchange. The general rule is that you should not be living in any property that you wish to exchange with a 1031 transaction – though there are some exceptions to that rule.
If you live in a home for several years and then decide to start renting it out, then you may be crossing into the realm of qualified property. However, it’s a good idea to continue renting the property out for at least a couple years before doing a 1031 exchange so the IRS doesn’t think you are trying to “game” the 1031 exchange.
Vacation homes are a bit of a mixed bag when it comes to 1031 exchanges. You can use vacation homes in 1031 exchanges, but you need to meet certain thresholds. Specifically, if you have a vacation property in a rental pool, you can do a 1031 exchange as long as you have used it no more than 14 days per year or 10% of the total time it was rented.
Like-Kind Real Estate
1031 exchanges allow a taxpayer to defer their capital gains taxes when they sell real estate. This can result in a significant tax savings and allow you to keep your money working for you over time. The first step in starting a 1031 exchange is contacting a qualified intermediary who can help you get the ball rolling. Your qualified intermediary is your guide through the steps of the like-kind exchange. They can answer your questions and prepare all of your documents. Contact the CPEC1031 qualified intermediaries today to begin the process of your like-kind real estate exchange.
- Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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