Aug

10

1031 exchange how does it work?

Filed Under Home :: Real Estate 

Matt H asked:


I just bought a home in June for a great deal. I am thinking about selling and getting another home, however only living there for 5 months I would like to avoide cap gains tax. Can I do a 1031 exchange on new home?

If I live there for two years does that exclude me from tax?

Ronald

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    • Comments

    2 Responses to “1031 exchange how does it work?”

    1. OCD with a splash of ADHD on August 11th, 2010 5:10 pm

      1031 is not for personal home sales, it is a tax vehicle for those businesses that buy and sell properties. For businesses as long as certain rules are followed and the subsequent property is of the same or greater value then the gain from the first sale is rolled into the purchase of the second property. Its original purpose was not to force someone to pay taxes in cash for a non-cash “swapping” of properties. Off course its being abused now.

    2. Tom Z on August 14th, 2010 10:25 pm

      1031 exchange does not apply to residential property. From the IRS web site: Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized.