How long can I live in my rental and still do a 1031 exchange?

5 Replies

My single-family rental is vacant for the first time in 16 years. I'm refreshing it with paint, floor, and more, and then I want to do a 1031 exchange in 2022. But at the same time, I'm selling my primary residence and buying another in the same area. Problem is, it is difficult to buy a new home in my area, having to compete with multiple over-asking-price offers within 24 hours of the listing. I was thinking that if I sell my primary and can't get into a new home right away, I could just live in my rental until I'm able to purchase a new primary. QUESTION: How long can I live in it (if at all), and still be able to do a 1031 with it? At what point does it lose its character as an investment property, eligible for a 1031? It won't be rented in 2022 at all before it's sold. Thanks!

Hey Rob, a property becomes your primary residence if you've lived in it for 2 of the last 5 years. So your single family rental would still be considered an investment, and eligible for 1031 exchange 

Originally posted by @Justin Vogelgesang :

Hey Rob, a property becomes your primary residence if you've lived in it for 2 of the last 5 years. So your single family rental would still be considered an investment, and eligible for 1031 exchange 

Wow. Is that true even if I have no other primary residence? If so, that would make it a lot easier having a place to live for a few months while finding another primary. Thank you! 

@Rob Bailey , I'd recommend a little bit more caution than @Justin Vogelgesang on this one.  You demonstrate your primary residence by where you register to vote, receive mail, the address on your drivers license, and where you sleep at night the most.  Justin's asolutely right that once you've lived in a property you own for 2 out of the previous 5 years you can sell it and take the primary residence exemption.  And that's a big deal.  But that is because it was your primary residence for those two years prior.  Not just after.

So all that being said, you want to be careful with doing any of those things that would establish that as your primary residence.  But the IRS does give you a safe harbor for staying in the property while you are working on it.  So if you just slow roll your live in remodel you should even be in compliance with the safe harbor.

Some personal use of your investment properties is fine.

Originally posted by @Dave Foster :

So all that being said, you want to be careful with doing any of those things that would establish that as your primary residence.  But the IRS does give you a safe harbor for staying in the property while you are working on it.  So if you just slow roll your live in remodel you should even be in compliance with the safe harbor.

Some personal use of your investment properties is fine.

Good to know. Slow rolling my remodel is probably the only way I roll. LOL. 

I've been wondering what to do about mail though, not that we get much. Probably a PO Box will do. And I guess Amazon deliveries to the rental won't show up on records. And I guess there's no rush to change voter residence or DL either, so it sounds like a plan. Thank you.