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I'm not interested in exclusion of the gain on a personal residence, as I plan to live in it far more than 5 years after conversion. My interest in how long do I need to deem it rental property prior to converting into owner-occupied residence. It appears it would be 2 to 3 years, which is within my time framework. Thanks, all.


1. There are professionals who handled exchanges. I used one from a title company (we do not use lawyers in the west for simple transfers so the title companies many times have 1031 facilitators in-house).

2. The 1031 rules indicate that the property is like for like, etc. Hence a rental for a rental in this case. There are no definitions of time limits for how long the next property is intended to be a rental.

As Donna already stated that she does not intend to keep it as a rental maybe it could be argued that she could never pass the 'intent' test.

3. At a practical level you only have to intend to hold the target property as a rental. How does one demonstrate intention?

A test that is held out as a good example but is not bullet proof is what did you declare on your tax returns. If you hold the property for 1 tax year as a rental and you took all the normal deductions then the deal will look like any other. If you were to hold the property for 2 years (2 tax returns filed so not necessarily 24 months) then the evidence implies that you were not intending at the time of the exchange to do something different.

At some level the point is all about flying under the radar so you are not detected and if you were to be questioned being able to show evidence that you did all the things expected of a rental property.

To make up a strange example...

Another possible test might be if you purchased a property that has little demand as a rental but somehow is uniquely qualified for your own personal use. You sell a 3/1 bd/ba renal home and then buy an artist loft studio that is above your retail shop for which there is no useful street access. You rent it for a small amount and show a loss. You then claim it as a rental on your taxes for a year before you change your mind about renting it and move in in month 13. The IRS might be able to argue that the intent was never really there and it was all a sham.

Intent is never clear so one has to look at secondary or circumstantial evidence. Flying below the radar so that you do not have to justify your position is part of the local of the 1-2 tax year advice.

John
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