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Level 1

If you rented your 1031 exchange house, and then moved into it, then sold it, how is all of this shown in the return so that your gain isn't taxed?

Bought house as a 1031 exchange in 2003. Rented it for one year. Then moved in as a primary residence for 14 years. Now am going to sell it and move to a new primary residence.
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Level 1

If you rented your 1031 exchange house, and then moved into it, then sold it, how is all of this shown in the return so that your gain isn't taxed?

It would be shown as the sale of your primary residence.  The government acknowledged the possibility of this scenario and created a special rule that applies specifically to it. When a property has been acquired through a 1031 Exchange and later converted to a primary residence, the owner faces a mandatory five-year hold period before having the ability to sell obtaining the Section 121 exclusion (the exclusion of $250,000 or $500,000 on the sale of your primary residence). The taxpayor still must satisfy the minimum two of five-year occupancy as primary residence.

Your basis is still the same as the 1031 exchange amount, and you will have to account for the depreciation for the year it was a rental.  If your gain is more than the $250,000 /$500,000 exclusion, then it will be taxable.  If the gain falls within those limits, you won't have any taxable gain.
4 Replies
Level 1

If you rented your 1031 exchange house, and then moved into it, then sold it, how is all of this shown in the return so that your gain isn't taxed?

It would be shown as the sale of your primary residence.  The government acknowledged the possibility of this scenario and created a special rule that applies specifically to it. When a property has been acquired through a 1031 Exchange and later converted to a primary residence, the owner faces a mandatory five-year hold period before having the ability to sell obtaining the Section 121 exclusion (the exclusion of $250,000 or $500,000 on the sale of your primary residence). The taxpayor still must satisfy the minimum two of five-year occupancy as primary residence.

Your basis is still the same as the 1031 exchange amount, and you will have to account for the depreciation for the year it was a rental.  If your gain is more than the $250,000 /$500,000 exclusion, then it will be taxable.  If the gain falls within those limits, you won't have any taxable gain.
808
Level 7

If you rented your 1031 exchange house, and then moved into it, then sold it, how is all of this shown in the return so that your gain isn't taxed?

Do you have to pro-rate the $250/500K Primary Residence Sale amount by how long it was rented out vs how long it was a primary residence?   For example, if the property was owned for 15 years, rented out for 10 years and then a primary residence for the final 5 years, does the 250/500 apply or is it 1/3 of that amount that is exempt?

 

Highlighted
Level 20

If you rented your 1031 exchange house, and then moved into it, then sold it, how is all of this shown in the return so that your gain isn't taxed?

no... it is NOT prorated however you still have to recapture the depreciation.

808
Level 7

If you rented your 1031 exchange house, and then moved into it, then sold it, how is all of this shown in the return so that your gain isn't taxed?

Thank you. This is good news. We are going to make a decision whether to move into our rental property or not based in part on this.  I don't want to offend, but are you a tax professional?  I understand this is a user forum, but it is big decision for us and I want to feel very confident when making it.  Thank you for your time.