5 Yr Holding Requirement on Sale of Primary Residence when Rental Property Acquired through a 1031 Exchange is Converted into a Primary Residence

President George W. Bush Signs H.R. 4520

The President signed H.R. 4520 into law on October 22, 2004. H.R. 4520 contains provisions that affect transactions where an Investor/Exchangor has combined a 1031 exchange pursuant to Section 1031 of the Internal Revenue Code with a 121 tax-free exclusion pursuant to Section 121 of the Internal Revenue Code.

New 5 Year Holding Requirement

The provisions contained within H.R. 4520 created a five (5) year holding requirement for an Investor (Taxpayer) who wants to exclude capital gains from his taxable income pursuant to a 121 tax-free exclusion from the disposition (sale) of his primary residence that was originally acquired as rental or investment property as part of a prior tax-deferred exchange transaction.

Do Not Confuse With Regular 1031 Exchange

Investors should take notice that this applies only to properties that were originally acquired as part of a tax-deferred exchange and then converted to their primary residence. It does not apply to properties that were NOT acquired through a previous 1031 exchange or to properties that have always been the Investors primary residence.

You can learn more at: http://www.exeterco.com/five_
year_holding_period.aspx