Can you live in a 1031 property if renting or set up a business?

2 Replies

We're currently living in Maryland but are eyeing property in CA. We likely won't be able to move there for another 2-3 years but have found a house we like. We have other rental assets here on the East Coast that we'd like to transfer into a CA rental property via a 1031 in CA and rent out the unit for two years. After those two years, we'd like to move to CA and occupy this rental property but we're concerned this would disqualify us from counting it as a 1031. Here are my two questions:

1) Can we occupy it as residence but rent part of the house out to a relative so as to still have it qualify as a 1031? and...

2) We currently run a business here in MD from our residence. If we do the same with the CA residence, will this now qualify the CA property as a 1031 since it's acting as a business hub and not just our residence? 

Any info would be greatly appreciated. Thanks,


@Dean Chigounis , It's actually way easier than your contemplating.  A valid 1031 exchange is a sale of property you've held for investment and a purchase of other property you intend to hold for productive use in investment.  There is no statutory holding period.  Only that you must establish your intent to hold for investment.

But nothing prevents you from later converting a property held for investment into your primary residence.  As a matter of fact we've had maybe thousands of clients do exactly that.The key is first establishing your intent.  And if you're looking at doing a 1031 now and buying that property and renting it for a couple of years you will be absolutely fine.

There is even a safe harbor from the IRS for just such a conversion with a 2 year holding period.  So no need to conjur up a relative lease or create a business unless you want. Simply do the 1031.  Rent the property out for a couple of years.  Then move in.  Yes it's that simple!


Thanks for the reply. But once we move into the residence and no longer rent it out, won't we no longer be eligible for the capital gains exemption? Would the IRS recognize that we're no longer renting after two years and negate our exemption? How does that work?