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New 5 Yr Holding Required On Sale of Primary Residence When Acquired by 1031
| | Thursday, October 28, 2004 @ 08:19 AM EDT
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Contributed by: William Exeter
William Exeter Properties
Read more archived articles about Tax Strategies
LA JOLLA, CALIFORNIA – William L. Exeter, president and chief executive officer of Diversified Exchange Corporation, announced today that President Bush signed H.R. 4520 into law on October 22, 2004. H.R. 4520 contains certain provisions that affect transactions where an investor has combined a 1031 Tax-Deferred Exchange pursuant to Section 1031 of the Internal Revenue Code with a 121 Exclusion pursuant to Section 121 of the Internal Revenue Code.
The provisions contained within H.R. 4520 created a five (5) year holding requirement for an investor who wants to exclude capital gains pursuant to a 121 Exclusion from the sale of his or her personal residence that was
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originally acquired as rental property as part of a 1031 Tax-Deferred Exchange transaction.
For example, prior to H.R. 4520, an investor that owned rental property could sell the rental property and acquire another rental property (typically a single family residence) to be held as rental property through a 1031 Tax-Deferred Exchange. After renting the property for 12 months or more, the investor would move into the rental property and convert the rental property into his or her primary residence. Once the investor has lived in the property as his or her primary residence for at least 24 months, the investor could sell the primary residence and exclude up to $250,000 in capital gains if single and up to $500,000 in capital gains if married pursuant to a 121 Exclusion.
Under the new tax law the investor is now required to hold the property for five years before they can exclude capital gains under a 121 Exclusion if the property was acquired as part of a 1031 Tax-Deferred Exchange. The provisions of this new law are effective for personal residence sales occurring on or after October 22, 2004.
“We had expected this tax “loop hole” to be eliminated, so we are very pleased that the strategy of combining a 1031 Tax-Deferred Exchange with a 121 Exclusion was not eliminated but merely restricted with a five year holding requirement, stated Mr. Exeter.
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Note: The 1031 in 1031 Like Kind Exchanges refers to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations.
Mr. Exeter has been a senior executive in the 1031 exchange industry since 1986 and has written and lectured extensively on tax-deferred, like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue Code. He has administered in excess of 50,000 1031 exchange transactions during his career.
You can contact Mr. Exeter here
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into exchange holding h.r. tax-deferred with gains five october this section under acquired provisions year required rental 1031 president sell sale exclude after primary exchange. property single 4520 investor exclusion internal capital revenue personal when part residence could pursuant
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