How long until I can 1031 my primary residence-turned-rental?

5 Replies

Hi all,

I’m buying a new house. If I keep my existing home as a rental, how long must I hold onto it until I can sell it and use the profits in a 1031 exchange?

Thanks!

@Jonathan Schwartz

No specific period. Long enough to be able to claim with a straight face (and defend this claim if challenged) that you had an expectation of investment profits from renting your former house. 

Depends on your comfort level and that of your accountant and your 1031 intermediary. 

Need a rule of thumb? They are risky, but 1 full year of renting at fair market value is likely to suffice.

@Jonathan Schwartz

If you sell within 3 years it’s tax free. I don’t see the advantage of waiting a year so that you can then 1031 exchange and only delay the taxes instead of eliminating them. Unless, I guess, if you have more than $250k as a single or $500k as a married couple in gains and want to 1031 the gains over that amount?

Originally posted by @Jonathan Schwartz:

Hi all,

I’m buying a new house. If I keep my existing home as a rental, how long must I hold onto it until I can sell it and use the profits in a 1031 exchange?

Thanks!

 If your gain is less than 250k or 500k married there is no point in doing 1031 exchange. If you do 1031 exchange in anything next three years after you move out, section 121 would wipe out your gain, so there’s is no gain to defer with 1031. You would just be wasting time and money coordinating 1031.

Sec 121 will be applied first before 1031. 

Just sell it with in 3 years and buy another property with the tax free gain. 

You will have small tax with depreciation recapture.