1031 into personal residence

[Eric Bilderback]

Looking for a CPA/EA who knows this answer.  I was a CPA but I don’t the answer to this.  

I have a friend who is 68 and lives in a trailer with his wife and granddaughter, kind of sucks. He does not have a ton of money but has some retirement and a rental house (which is out of town). Can he put the rental home in an LLC then do a 1031 exchange and rent the home for himself while deferring the tax consequences? Or is this not acceptable?

Thank you for the help.

[Dave Foster]

@Eric Bilderback, Everyone is absolutely right- irrelevant of what entity that house is in you cannot sell it and do a 1031 into a house that will be your immediate primary residence without creating a holding entity that is so arms length that your friend would end up with huge complex tax issues that it doesn't appear he needs right now.

However I think your friends answer will lie with patience and timing.  Forget the entity for a minute.  Sell the rental and do a 1031 for another rental that also happens to be a really nice "potential" residence.  Rent it for a while, collect income and then after a period change the intent by moving in.  Rent out the trailer or sell it and take the Gain from that tax free under the primary exemption of 121.

There's a safe harbor for this practice given by the IRS in rev proc 2008-16.  I think that's the link that @Steven Hamilton II gave you.