1031 Like Kind Exchange Example - John R. Dundon II, Enrolled Agent
8044
post-template-default,single,single-post,postid-8044,single-format-standard,bridge-core-3.0.1,qodef-qi--no-touch,qi-addons-for-elementor-1.5.4,qode-page-transition-enabled,ajax_fade,page_not_loaded,,qode_grid_1300,footer_responsive_adv,qode-content-sidebar-responsive,qode-theme-ver-29.0,qode-theme-bridge,qode_header_in_grid,wpb-js-composer js-comp-ver-6.9.0,vc_responsive,elementor-default,elementor-kit-269
 

1031 Like Kind Exchange Example

1031 Like Kind Exchange Example

Bill and Geri completed a like-kind exchange a little over a year ago when one rental property was exchanged for another rental property in Florida.  Bill and Geri intend to retire to Florida as soon as possible and would like to convert the acquired rental to their principal residence. They are concerned about the sizable gain that was deferred in the exchange and would like to know if it is possible to convert the rental to principal residence and still defer their gain.  The answer is yes!  However, Bill and Geri will need to exercise a little patience by waiting a minimum 24 months after the exchange and by meeting safe harbor provisions of Rev. Proc. 2008-16.

To qualify as a like-kind exchange the properties must be held either for productive use in a trade or business or for investment purposes. Rev. Proc. 2008-16 provides a safe harbor when a second home qualifies as held either for productive use in a trade or business or for investment purposes. As long as both the relinquished and replacement property meet the provisions, the gain deferral available under §1031 will be preserved. The IRS will not challenge a property as qualifying for Section 1031 gain deferral if:

  • the relinquished property has been held for at least 24 months immediately preceding and the replacement property has been held for at least 24 months immediately following the exchange, and

  • in each of the two 12-month periods immediately preceding the exchange the taxpayer rents the relinquished property to another person at fair market value for at least 14 days, and the taxpayer does not use the property more than the greater of 14 days or 10% of the total number of days the property was used, and c) in each of the two 12-month periods immediately following the exchange, the taxpayer rents the replacement property to another person at fair market value for at least 14 days, and

  • the taxpayer does not use the property more than the greater of 14 days or 10% of the total number of days the property was used



Share