Full year of renting out before I 1031 a previous rental?

5 Replies

I lived in the house for 1.5 years, then rented it out for 3 years and lived in it again for about a year then rented out again but not a full year yet. Do I need to rent it out again for a full year before 1031 exchanging?

From what I understood there is no actual guideline as to how long it has to be rented to qualify for a 1031. My other rental that I did a 1031 with though was a 4  year long rental so there was no gray area at all. 

 

Yeah, ideal would have been to sell it tax free rather than turn it back in to a rental the second time. Now the best you can do is defer the taxes. 

@Dave Foster will be your expert here but I’m pretty sure I’ve heard as you have, there’s no hard and fast rule, it’s all based on intent. The fact that you could have sod tax free but turned in into a rental instead and now face taxes should work in your favor in the argument of intent. 

@Jack B. , Like @Bill Brandt said and you've discovered it's all about intent.  The question is going to surround why you turned it back into a rental and why you are now selling.   If your intent was to hold but something happened to change your intent then a 1031 would be appropriate.  

Originally posted by @Dave Foster :

@Jack B., Like @Bill Brandt said and you've discovered it's all about intent.  The question is going to surround why you turned it back into a rental and why you are now selling.   If your intent was to hold but something happened to change your intent then a 1031 would be appropriate.  

I only wanted to move into the house temporarily after selling my primary residence, while I figured out what the market was doing, etc. The intent was always to move back out and rent it out again eventually. Also, the house is needing more and more capex, so I've decided to accelerate the sale rather than hold onto it for a few more years as a rental then sell.

 

@Jack B Yes, you're right. There is no specific time period for which a property should be used for investment purposes. However, the IRS can question a 1031 exchange anytime they want. Since you've converted your primary residence into a rental property and then again to a primary residence, your intent behind the exchange could be questioned by the IRS. They may ask you to rent out your property for a couple of years before you could do a 1031 exchange on it. Therefore, the longer you'll keep your property under rent, the easier it would be for your to 1031 exchange it into another property. I would suggest you to keep your property for a year under rent and then go for a 1031 exchange. However, you can do it earlier as well. There is no restriction.

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