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ConvertIng Your Investment Property into Your Primary Residence

Thomas Moore 1031 Exchange TipsTom’s Tip of the Month

Often our Equity Advantage Exchange clients will acquire an investment property to be converted later into their primary residence.

Road Map

After years of use, the government ratified the process by placing a required minimum 5-year hold on a property acquired using 1031 and later converted to a primary residence. Though there is no required minimum time the property must be held for investment if the property was converted to a residence and sold inside 5-years it was deemed a fully taxable sale. Though the new holding period slowed the process it was still a very effective strategy.

The Housing Assistance Tax Act of 2008 included another modification to Section 121. The exclusion amounts apply only to the “qualified use” period. In other words the $250k/$500k exclusions would only apply to the gain attributable to the time the property was occupied as a primary residence. Again, we see the government closing the benefit the process offers.

Although today we have much greater restrictions on this strategy it can still prove quite beneficial. If you’d like the details of this process and it’s application to your situation please give us a call at Equity Advantage 800.735.1031.

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