1031 Exchange - Can owner occupy for short term?

Forum|Forum|3 years ago
February 27, 2023
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1031 exchange question

Situation: Planning to sell a townhome and buy another one via 1031 exchange.

Questions:

1. I am planning to live in the new townhome for sometime like 6 months to a year. Any issues with this? Does it disqualify me from taking tax deferment via 1031?
2. Current property is paid off. So, the new property can be bought with cash. Will there be any issue, if I pay part of money (20%) to the new home and finance rest? Do I need to pay income taxes on the gains?
3. Will there be any issue, if I buy the new property ahead (1 or 2 months) of selling the current property

Best answer by Anonymous_

@BlaBla22 wrote:
I am planning to live in the new townhome for sometime like 6 months to a year. Any issues with this? Does it disqualify me from taking tax deferment via 1031?

You need to discuss all aspects of your exchange with a qualified intermediary/exchange facilitator and you could very well jeopardize your deferment by using the property as a personal residence immediately after the exchange.

There is a safe harbor outlined in Rev. Proc. 2008-16.

See https://www.irs.gov/pub/irs-drop/rp-08-16.pdf

Anonymous_Answer

Employee

@BlaBla22 wrote:
I am planning to live in the new townhome for sometime like 6 months to a year. Any issues with this? Does it disqualify me from taking tax deferment via 1031?

There is a safe harbor outlined in Rev. Proc. 2008-16.

See https://www.irs.gov/pub/irs-drop/rp-08-16.pdf

BlaBla22Author

Thank you for the prompt response. Appreciate it.

Mike9241

you can not exchange rental property for a personal residence and get a tax deferral. what some tax pros advise is to rent it out for a year or so and then convert it to your personal residence. note this one-year rental is a suggestion it is not etched in stone. so confer with a tax pro.