How do I report the sale of a section 1031 property that was converted to a primary residence? Rental property A was exchanged for a like property B under section 1031. After meeting the primary residence requirement of 5 years on property B, it is now being offered for sale. Upon sale of property B, what forms and/or documents will I need to include on my federal income tax return?
You will need to report it in Sale of Home and follow the procedures below.
Like-kind/1031 exchange.
If you sold a home that you acquired in a like-kind exchange, then the following test applies.
You can’t claim the exclusion if:
Either a. or b. applies:
You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or
Your basis in your home is determined by reference to a previous owner's basis, and that previous owner acquired the property in a like-kind exchange (for example, the owner acquired the home and then gave it to you); and
You sold the home within 5 years of the date your home was acquired in the like-kind exchange.
For more information about like-kind exchanges, see Pub. 544.
If you relinquished your home in a like-kind exchange, then you should determine if you qualify to exclude gain as you would if you sold the home. Under certain circumstances, you may meet the requirements for both the exclusion of gain from the exchange of a main home and the nonrecognition of gain from a like-kind exchange. For more information, see Revenue Procedure 2005-14, 2005-7 I.R.B. 528, available at Rev Proc 2005-14.