Oftentimes taxpayers ask me:
“Hey I don’t qualify for the personal residence exclusion because I haven’t lived in the property for two of the preceding five years, but I still want to defer the gains. Can I do a 1031 exchange with my principal recidence?”
The 1031 Exchange Qualified Purpose Rule
The answer is no. In order to qualify for 1031 you must have held the property for investment or business purposes. The fact that you’ve lived in the property and are residing in the property is antithetical to holding it for investment or business purposes. If people don’t qualify for the principal residence exclusion and they want the tax deferral they may want to structure their transaction so that they rent the property out for a few years to rehabilitate it as a business or investment property and then it can qualify for 1031.
For more information on what type of properties qualify (and don’t qualify) for 1031 exchanges, check out this article.
Commercial Partners Exchange Company
If you have any other questions relating to 1031 exchanges, don’t hesitate to reach out to our qualified intermediaries for assistance. Commercial Partners Exchange Company has been facilitating 1031 exchanges of real estate for more than two decades. Our intermediaries can walk you through the entire exchange process and make sure you’ve got all your bases covered. Contact us today at our downtown Minneapolis office to learn more about our services and how we can help!