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marciejpyke
Returning Member

Long term capital gains

I'm selling a rental property in Arizona and I'll be profits around $130k.  I'm living in New Jersey now and looking at my options.  If I were to take the profits from the rental property and do a 1031 exchange... can I live in the property as well as use it for business? Say airbnb or run my massage business out of it or my fiance's painting business or all three?  Or it has to be fully a rental, is there a length of time that I can turn it into a primary residence? Also, would the new property need to be of equal to or great than the sale price of the sold property or just all of the profit?  

 

Lastly, my income puts me in the 0% capital gains bracket, but from what I'm understanding I would still need to pay 15% on any profits that brings my income past $40,400.  This is if I dont do the exchange of course.  Do I have this right or no? 

 

Thank you so much!

3 Replies
martinmarks
Level 10

Long term capital gains

You can't live there full time as your main home and comply with the IRS safe harbor rules. Get a qualified 1031 intermediary if you're serious and ask questions.....they're experts and have all of the answers to your 1031 questions.

 

(1) Relinquished property. A dwelling unit that a taxpayer intends to be relinquished property in a §1031 exchange qualifies as property held for productive use in a trade or business or for investment if:

(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately before the exchange (the “qualifying use period”); and
(b) Within the qualifying use period, in each of the two 12-month periods immediately preceding the exchange,
(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and
(ii) The period of the taxpayer’s personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

 

 

(2) Replacement property. A dwelling unit that a taxpayer intends to be replacement property in a §1031 exchange qualifies as property held for productive use in a trade or business or for investment if:
(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately after the exchange (the “qualifying use period”); and
(b) Within the qualifying use period, in each of the two 12-month periods immediately after the exchange,
(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and

(ii) The period of the taxpayer’s personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

Critter-3
Level 15

Long term capital gains

Due to all the posts you have made in this forum https://ttlc.intuit.com/community/user/viewprofilepage/user-id/4424931

 

I ONCE AGAIN HIGHLY RECOMMEND  you sit down with a local tax professional to be educated in all the options you have available and get educated on how to do them correctly.   This is not something the TT program handles easily if at all so using a paid tax pro for this return would be wise  AND  you must use  a qualified intermediary to complete the 1031 exchange so have a talk with one of those as well BEFORE you do anything.  

 

Also, as much as we all on this public forum would like to help you really should not depend on anything you get from a nameless faceless public internet forum since you are ultimately  responsible for everything on your tax return.  

 

 

Mike9241
Level 15

Long term capital gains

as others have said seek out a professional tax advisor.  several points as to why.  not only do you have to reinvest all the proceeds but consideration must also be given to the mortgages on the old and replacement properties. a decrease is taxable boot.  if you don't do a 1031 the gain to the extent of depreciation taken or should have been taken is section 1250 gain which is not taxed at 0%. if you have suspended PAL it will continue to be suspended if you do a 1031.

 

 

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