Primary Residence 1031 Exchange

[Jared Asch]

Do you know of anyone who converted their primary residence to a rental property (in San Francisco area so selling for more than $2 million) before selling it later under a 1031 exchange? Obviously, only makes sense to defer gains under 1031 if someone has more than the $500k capital gains that a married couple could already exclude. How long would they need to rent it for? Term on sale? 

[Bill Exeter]

Hi @Jared Asch and @Will Fraser, 

Will is right on the money.  It is all about demonstrating that you did intend to convert your primary residence into a rental property and then later selling.  The day you move out of your primary residence and convert into a rental property begins a three year window in which you have to both rent and demonstrate your intent to convert to a rental and then ultimately sell and close on the sale before the end of the three year window.  

For example, you could move out, convert to a rental property, rent for two years (straddles three tax years), then list, sell and close before the end of the next one year period.  This would allow you to qualify for both the 121 Exclusion ($250,000/$500,000 tax free exclusion) and the 1031 Exchange.