Can I use a 1031 on the sale of my primary residence?

[Jillyan MacMorris]

I own and live in a condo, but my building is being sold in a deconversion! An offer has been accepted and I we are in the 60-day closing period as we speak. Can I use a 1031 exchange on my primary residence to purchase a new primary residence? Or only on investment properties?

I purchased my existing condo as my home, but started renting it out on AirBnb a few months ago. Would it then count as a rental property for this purpose? I intend to house hack the next property, opting for an owner-occupied conventional loan. Does a 1031 only apply for loans on properties which are 100% rentals from the start?

[Bill Brandt]

The loan type doesn’t affect a 1031. But this is obviously your primary, so no 1031. You don’t want a 1031 anyway, that only defers the taxes. You get the first $250k in capital gains tax free ($500k if married) on your primary. Most people are trying to do the opposite. Change their rental in to a primary for tax purposes. 

If you’re going to gain more than $250/$500k talk to a tax consultant about rounding up any receipts that could prove deductible.  (Some loan costs, selling costs, capex, etc…)

[Jillyan MacMorris]

Thank you @Bill Brandt!! That makes sense, and I will not be making more than $250k, so I’m good! I appreciate you explaining my options!

[Zachary Carver]

@Jillyan MacMorris Keep in mind you have to live in the residence 2 out of the last 5 years to take that tax benefit. If you haven't lived there for 24 months, you may have to pay capital gains. 

[Jillyan MacMorris]

@Zachary Carver, I’m glad you mentioned that! I have only lived in the place for 14 months and it’s being sold. In that case, @Bill Brandt, should I opt for a 1031 exchange? 

[Tom Fidrych]

Quote from @Jillyan MacMorris:

@Zachary Carver, I’m glad you mentioned that! I have only lived in the place for 14 months and it’s being sold. In that case, @Bill Brandt, should I opt for a 1031 exchange? 

You can only 1031 investment properties so can't utilize it for your primary residence.

[Jay Hinrichs]

Quote from @Jillyan MacMorris:

@Zachary Carver, I’m glad you mentioned that! I have only lived in the place for 14 months and it’s being sold. In that case, @Bill Brandt, should I opt for a 1031 exchange? 

since their are extenuating circumstances out of your control you might still get the 250k tax free.  check with a Decent Cpa on that one.

[Bill Brandt]

It would help if you didn’t have the option not to sell, like an Hoa vote or building condemnation. But even without that you might be able to find a good tax consultant who could argue for the 50% credit for “time served”. At least you’re in the long term capital gains bracket. And you said less than $250k. So you should be maxed out at 15% or less. (You might owe $15k for every 100k you make after expenses.)

It sounds like enough money I would talk to a tax guy/gal. 

[Jillyan MacMorris]

@Jay Hinrichs Thank you! I’ll reach out to someone!

[Basit Siddiqi]

1031 exchange has to be investment property for investment property.

A personal residence is not an investment proprety.

However, you may potentially be eligible for 121 exclusion.