Investment Property (Out of State) to Primary Residence Exchange

[Marko Zivic]

Hi Guys!

I have a client who lived in a SFH in Pennsylvania from June of 2013 until Feb of 2015. He then found tenants to convert it into a rental property and has been a rental property for him since April of 2015 to current.

Client now lives in San Diego and is looking to do a 1031 / 1035 exchange from that rental property to a primary residence here in San Diego. Does this scenario qualify under the exchange regulations? Did it matter than he didn't live in the house for more than 2 years? Since its already held for a LT-Capital gain he can just sell it and wont take too big of a hit to purchase a new home -- if he doesn't qualify. Any additional information just to help with the decision making process would be appreciated. 

Thanks so much!

EDIT: Can he do an exchange to a rental property here in San Diego then convert that rental property to a primary residence? Just a thought i had before submitting the post. haha 

[Dominic Lucarelli]

A 1031 exchange can only be used if your exchanging one "like kind" property for another. A rental cannot be sold under a 1031 exchange unless you're purchasing another rental property.