Can I go into a 1031 and live in it?

Question

Can I convert a 1031 property back into a property I can live immediately after I complete the 1031 transaction?

Bill B. · Answer

Long enough to show you didn’t plan on it the whole time. I don’t know if it’s too late to delete forum posts saying your planning on breaking the law. But with only 7 posts you’re probably not using your own name anyway. So that’s good for you.

Ps. Since it will be a rental first, no matter how long you live there you will still owe taxes as a percent of time.

Scott Wolf · Answer

@Mary Chen, yes.  Just be prepared to pay your capital gains tax on it.

Without actual extenuating circumstances, the IRS will not let that go lightly.

Dave Foster · Answer

@Mary Chen, Well the forum spoke loudly on this one.  If you do a 1031 exchange  you are selling a property you have held with investment intent and buying a property you intent to hold for investment.  Depending on what you mean by "once the exchange is complete" you can change your intent and move in.

But the key is that you must be changing intent and be able to demonstrate that.  If you sell, 1031, buy, and pull your moving van up to the driveway the next day what was your intent?

If you rent the property for a year or two and then move in that becomes a much easier demonstration of intent and changing intent doesn't it?

Your financial advisors who have the whole picture of your will be invaluable to help you thread this needle.  And from what I remember your situation is fairly complicated anyway with parents needing to 1031 and you renting from them.

Bill Exeter · Answer

Hi @Mary Chen,

No, the replacement property that you acquire must be held for rental, investment or business use.  It cannot be held for personal use such as a primary residence.  The tax code, regulations and rulings have no holding period, but they do require that you have the intent to hold the property for rental or investment purposes.  Your intent can change later, but under an audit you would have to show that your intent was to acquire and hold the replacement property for rental, investment or business use and not for personal use.

Glenna Wood · Answer

No

Mary Chen · Answer

@Scott Wolf what’s an appropriate time?

Can I go into a 1031 and live in it?

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