There is a lot of information on the internet today regarding 1031 exchange transactions, but the majority of it is more sales and marketing in look and feel than educational and technical in nature.
We thought it was time to roll out a weblog that addressed the technical, educational, and resource demands of consumers today. So, we rolled out The 1031 Exchange Institute. Please visit the new weblog and let us know what we can do better so that it is more useful for you.
Friday, June 20, 2008
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2 comments:
Many people are exchanging investment property for single family houses that they rent and then convert to personal residences and then sell with the $500,000 exclusion. How does the IRS look at this? What are the upsides and downsides with this method of reducing capital gains?
Hi Mark,
This exact structure was covered in H.R. 4520 (American Jobs Creation Act of 2004) that was signed into law by President Bush in October 2004.
The only requirement in addition to what you outlined is that the taxpayer must own or hold the property for at least five (5) years before they can take advantage of the 121 exclusion ($500,000 tax free exclusion) if the property was originally acquired through a 1031 exchange.
It is important to keep in mind that the 121 exclusion does not exclude depreciation recapture. It only excludes capital gains.
However, the strategy that you propose is a great tax planning strategy available to taxpayers and should be used when ever possible. The ability to convert what would be a tax-deferred event into a tax free event is always a better way to go.
Hope this helps.
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