Can I exchange my owner occupied residence in a 1031 exchange transaction?

Answer 1

Section 1031 of the Internal Revenue Code allows for the exchange of non-owner occupied real property. It allows investors to defer paying capital gains and depreciation recapture taxes when they exchange the proceeds of their old investment property into an exchange property. Almost every kind of real estate is considered "like kind" and can be exchanged for any other real estate, including vacant land for apartments, a rental house for a shopping center, an office building for a leasehold interest with 30 years or more remaining, if they are held for INVESTMENT OR BUSINESS USE. Personal residential property is not investment property. Any property that you have occupied as your primary residence will not qualify for tax deferral under Section 1031 until you have held it for investment or productive use in a business or trade. The rules for personal residence rollovers were formerly found in Section 1034 of the Internal Revenue Code. These rules were discontinued with the passage of the 1997 Tax Reform Act. Currently, there are separate tax shelters for residential housing which are in many ways better than the breaks you get under Section 1031 for investment property. IRC Section 121 allows an individual a $250,000.00 gain exclusion ($500,000.000 if you are married filing jointly) on the sale of your principal residence. The property must have been your residence for at least two (2) years out of the past five (5) year period. The period begins on the date of the sale of the property.

Answer 2

1031 exchange is only for property held for business or investment purposes. if this is your primary residence and you have lived there at least 2 years out of the last 5, you don't need to worry about an exchange to defer taxes, simply go ahead and sell and your tax-exempt gain is $250k if you are single, $500k if married. at this point, the IRS does not limit how many times you can do this, so theoretically you could sell every two years and pay no taxes on the gain up to the limits.

Answer 3

I suppose you can. If you are filing single and stand to gain more than $250k, or filing jointly and gaining more than the allowable $500k, it could probably work.