I purchased a house back in Dec 2012 that was my primary residence until Oct 2015. Since then I have been renting the house and have decided to sell. The house is 2 hrs away from my current residence and I am looking to purchase a duplex locally with the gains from the sale.
My question is, does this qualify for a 1031 exchange outright because I lived there 3/5 years, or do I also need to begin solidifying plans for the purchase of the next property. If someone could point me in the right direction, that would be greatly appreciated. Thanks.
@Alex Uchida , This house would qualify for a 1031 exchange. You still have to follow the 1031 process which begins with the sale of your old property.
However, you also qualify for the primary residence exclusion since you have lived in the property for 2 out of the previous 5 years. You can sell and without doing anything process wise take the first $250K of gain ($500K if married) tax free. The only difference in your case is that you would have to recapture depreciation on the two years you used it as a rental.
So, if your gain is less than the primary residence maximum and if depreciation isn't that much I'd recommend that you simply take the primary residence exclusion and not do a 1031.
If your gain exceeds the primary exclusion or if depreciation is high then I'd recommend that you do both. so 250/500k of the gain would be tax free and the rest of the gain and the depreciation go into the 1031.