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Other
QI's have told me I could do an
exchange on my personal residence
if I keep it quiet. Is this risky?
Yes it is risky -- AND it's an
unnecessary risk at that. You
don't need to do a Section 1031
exchange on your primary residence
to defer or eliminate taxes. If
you've lived in your house for
two out of the last five years,
you can claim the exemption (under
Section 121 IRC) on capital gains
up to $250,000 for single tax
filers and up to $500,000 for
joint returns. And, you can take
this exemption every two years!
If
your gains are over these limits,
you might be able to do a §1031
exchange if you've treated the
property as investment or for
business use for at least the
last year and a day. In this case,
you can sell the property, use
the exemption under Section 121,
and for the rest of the gain defer
it using Section 1031. This needs
to be carefully done and documented,
so use a Qualified Intermediary
that has both legal and accounting
skill sets and experience.
If
you've lived in the house for
less than two years, you still
might be able to take what is
called a partial exemption or
a Reduced Maximum Exclusion. But
this is not a Section 1031 exchange.
Check with your tax advisor (or
click here and scroll down to
page 14: http://www.irs.gov/pub/irs-pdf/p523.pdf).
One
final thought, if you are wanting
to sell your investment property,
one that qualifies for a Section
1031 exchange, and buy into what
COULD become your personal primary
residence -- then that MIGHT be
possible. Discuss this thoroughly
with your QI!
--The
Experts
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