Convert 1031 exchange property to personal residence? - Posted by Dan (NC)

Posted by marla on April 19, 1999 at 15:28:28:

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Convert 1031 exchange property to personal residence? - Posted by Dan (NC)

Posted by Dan (NC) on April 16, 1999 at 19:21:20:

I probably shouldn’t be asking this on April 16th, but what the heck. After buying a property via a 1031 exchange, and renting it for one to several years, what are the tax consequences of deciding to make it your personal residence? Along the same lines, if the rental property was not acquired through an exchange, and you convert it to a personal residence after several years, again, how about the taxes? Thanks.

Re: Convert 1031 exchange property to personal residence? - Posted by Bud Branstetter

Posted by Bud Branstetter on April 16, 1999 at 22:59:45:

From what I remember on this is when rental property is converted to personal residence the basis becomes what it was at that point and you stop depreciating it. Following that line, live in it for 2 years and sell. The only string on 1031 exchanges is when the properties are sold too soon.

Re: Convert 1031 exchange property to personal residence? - Posted by Steve(CPA)

Posted by Steve(CPA) on April 17, 1999 at 02:29:01:

Dan,

I’m a CPA in TN and I would first advise you to see a CPA on your personal situation immediatey. But I think if you convert your 1031 to a personal property then you will have to pay taxes on the exchange of the disposed property. Because you are making the 1031 exchange invaild.

I would have to do some research because 1031’s are not clear cut in every case, but I would say call your CPA and get them to tell you.

Good luck

Re: Convert 1031 exchange property to personal residence? - Posted by marla

Posted by marla on April 17, 1999 at 15:01:37:

From what I’ve read and discussions with my CPA, a 1031 facilitator and my RE attorney, it’s my understanding that if you want to convert a property acquired via a 1031 exchange into your personal residence without invalidating the 1031 exchange, you can probably do it after a “reasonable” period . I’ve asked for clarification of “reasonable” and each of the above has said something like “probably 1-2 years would be sufficient” to prove that your intent was to acquire an investment property. The critical piece is the intent.

Hope this helps. If you find anything more on the subject, I’m interested!

Marla (Santa Clara, CA)

Good Post - Posted by JHyre in Ohio

Posted by JHyre in Ohio on April 18, 1999 at 08:26:25:

Your CPA is correct. Reasonable period is not clearly defined anywhere. I could make a strong argument for 1 year and am very comfortable with 2 years.

John Hyre

Re: Convert 1031 exchange property to personal residence? - Posted by SteveS(CPA)

Posted by SteveS(CPA) on April 17, 1999 at 23:50:37:

Marla

I looked up the conversion period for a 1031 and “reasonable period” was used several times. But two years seems right to me also. I also couldn’t find any case law were the exchange and conversion violated the 1031 after two years.

So you should be fine.

Best of luck to you.