1031 exchange question

Houston, TX · Member since 2018 · 36 posts · 12 votes

I am closing on a personal property at the end of August. I am going to move all of my stuff over then list my current home. Can I still do a 1031 exchange?

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Melissa HartvigsenBusiness Member

Real Estate Agent · Beaverton, OR · Member since 2020 · 190 posts · 158 votes

Hello @Troy Welch,

1031 exchanges in the tax code are designed for tax deferral on investment properties though a like-kind exchange, and not personal residences. Generally (assuming the assets are eligible) the exchange must be set up prior to acquiring the new property and disposing of the old property in order to qualify for any exemption. The IRS does not let you do this after the fact.

Gains from the sale of your personal residence may be eligible for a capital gains tax exemption up to $250,000, or $500,000 if the property is jointly owned with your spouse and you file taxes jointly. The IRS has length of ownership rules for meeting this exemption. You can read more here https://www.irs.gov/taxtopics/tc701 and should consult with a CPA if you have further questions.

Cheers,
Melissa

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Melissa HartvigsenBusiness Member
Real Estate Agent · Beaverton, OR · Member since 2020 · 190 posts · 158 votes
3y
Hello @Troy Welch,
1031 exchanges in the tax code are designed for tax deferral on investment properties though a like-kind exchange, and not personal residences. Generally (assuming the assets are eligible) the exchange must be set up prior to acquiring the new property and disposing of the old property in order to qualify for any exemption. The IRS does not let you do this after the fact.
Gains from the sale of your personal residence may be eligible for a capital gains tax exemption up to $250,000, or $500,000 if the property is jointly owned with your spouse and you file taxes jointly. The IRS has length of ownership rules for meeting this exemption. You can read more here https://www.irs.gov/taxtopics/tc701 and should consult with a CPA if you have further questions.

Cheers,
Melissa
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Troy WelchPro Member
OP
Houston, TX · Member since 2018 · 36 posts · 12 votes
3y
@Melissa Hartvigsen
Thank you
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Simon Misiewicz
Member since 2022 · 23 posts · 9 votes
3y
A 1031 exchange, also known as a like-kind exchange, allows you to defer capital gains taxes on the sale of investment or business properties by reinvesting the proceeds into another like-kind property. However, there are specific rules and timeframes you need to follow to qualify for a 1031 exchange.

To qualify for a 1031 exchange, both the property you are selling (the relinquished property) and the property you are buying (the replacement property) must meet certain criteria:
1. Like-Kind Property: The properties involved in the exchange must be of like-kind, meaning they are of the same nature or character, even if they differ in grade or quality. For example, you can exchange a residential rental property for another residential rental property.
2. Investment or Business Use: Both the relinquished property and the replacement property must be held for investment or business purposes. Personal properties, such as a primary residence or vacation home, do not qualify for a 1031 exchange.
3. Timing: To complete a 1031 exchange, you must identify the replacement property within 45 days of selling the relinquished property and close on the purchase of the replacement property within 180 days of the sale of the relinquished property.
Based on your situation, it appears that the property you are buying at the end of August is a personal property (not held for investment or business use) and will be used as your primary residence. Since personal properties do not qualify for 1031 exchanges, you would not be able to use a 1031 exchange to defer capital gains taxes on the sale of your current home.

If you intend to take advantage of a 1031 exchange, you would need to consider investment or business properties as replacement properties and ensure that you meet all the other requirements within the specified timeframes.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
3y
@Troy Welch, You can do a 1031 exchange but not into that property you are buying. For two reasons:
1. I think when you said it was a personal home that you mean you will be living in it? If so then it is your primary residence and you cannot 1031 into your primary residence without first using the property for investment for a year or two.
2. You cannot take title to your new property until you have completed the sale of your old property.
If you want to 1031 you'll need to be purchasing a property to be used for investment and that will close after the sale of your old property is completed.
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Bette HochbergerBusiness Member
Accountant · 33301 · Member since 2022 · 57 posts · 43 votes
3y
Hello,

A personal property that you live in is generally not eligible for a 1031 exchange because it's not typically considered "held for investment." However, if you intend to convert your current home into an investment property and rent it out after you move, you might have a chance to explore a 1031 exchange. Hope this helps!

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