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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10469
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I found some info sec. 105 which says that a rental exchanged

This answer was rated:

I found some info sec. 105 which says that a rental exchanged by 1031, must be held for 5 years, before it can be sold as a residence, in order to exclude the defered gain. And must meet the 2 year ownership & use test.
Is there any other investment, besides exchanging into a real property at
$ 500,000 that could be used as an exchange? client found investment company
that offers some kind of investment that would qualify? Do you know of any?
Thanks again,
Fred

NPVAdvisor :

Sale of residence that was formerly investment
property – the taxpayer is entitled to only a pro-
rated portion of the $250,000/$500,000 exclusion.
• Non-qualified use prior to January 1, 2009 is disre-
garded, except for purposes of meeting the 5 year
rule under HR 4520, if applicable1
• Gain resulting from depreciation is taxed and is
disregarded for purposes of determining the pro-
rated amount of the exclusion

NPVAdvisor :

This is a result of the amendment to rule 121, effective Jan. 1 2009

NPVAdvisor :

Maybe an example will help:

NPVAdvisor :

Taxpayer acquires an investment prop-
erty, rents it for 3 years and then occupies it for 5
years as his principal residence (no use prior to 2009)
before selling it and realizing $350,000 of gain of
which $40,000 is from depreciation deductions.
$40,000 of gain is depreciation and is excluded from
the calculation. The remaining $310,000 is subject to
the prorata calculation as follows:

NPVAdvisor :

3 (years of non-qualified use) = 3 (37.5%) x $310,000=$116,250
8 (years total ownership)
8
Thus $116,250 is not eligible for exclusion and is
taxed at the applicable capital gains rate. $40,000 of
gain is from depreciation and is taxed at the applica-
ble recapture rate. The remaining gain of $193,750
may be excluded from taxation under §121.

NPVAdvisor :

Here's another one:

NPVAdvisor :

Taxpayer acquires an investment prop-
erty in 2007, rents it until 2010, and then occupies it
for three years as his principal residence before sell-
ing it in 2013, realizing $400,000 of gain. The two
years prior to January 1, 2009 are disregarded (but
included for determining the five year period).
1 year non-qualified use
(disregard 2007, 2008) =
6 years of total ownership
1 (16.66%) x $400,000=$66,640
6
Thus, $66,640 is not eligible for exclusion and is
taxed at the applicable capital gains rate. $250,000 of
the remaining gain may be excluded under §121, with
the balance of the gain, $83,360 taxed at the applica-
ble capital gains rate. In sum, $250,000 is not taxed
and $150,000 is taxed.
Taxpayers selling a principal residence after
January 1, 2009, which was formerly used as an
investment/rental property should consult with their
tax or legal advisors regarding the application of the
amendment to §121 to their particular situation.

Lane and other Tax Specialists are ready to help you


Thanks Fred,

Let me know if I can help further

Lane

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