Normally the IRS does not allow you to conduct a 1031 exchange with your primary residence. That’s because the home that you live in isn’t being used as an investment property or being held for business purposes. Instead, your primary residence is used to provide shelter for your family.
How do I depreciate a rental house?
For residential properties, take your cost basis (or adjusted cost basis, if applicable) and divide it by 27.5. Put another way, for each full year you own a rental property, you can depreciate 3.636% of your cost basis each year.
A 1031 exchange generally only involves investment properties. Your primary residence isn’t typically eligible for a 1031 exchange. Even a second home that you live in some of the time is ineligible if you don’t treat it as an investment property for tax purposes.
When to use the 1031 exchange in real estate?
When people refer to the 1031 exchange in general, this is usually the exchange they are referring to. The forward exchange occurs when you sell an existing investment or business property, then acquire a replacement property within 180 days. Said differently, the first step is selling your existing property.
When do you have a simultaneous property exchange?
A simultaneous exchange occurs when you find an exact property to exchange for your own property. The properties are exchanged on the same day, and as the name suggests, the same time. Any delay, even a bank wire or escrow issue, would result in the exchange being nullified. There are three main types of simultaneous exchange:
Is it possible to exchange one property for another?
You can even exchange one business for another. But again, there are traps for the unwary. Classically, an exchange involves a simple swap of one property for another between two people. But the odds of finding someone with the exact property you want who wants the exact property you have is slim.
How long does it take to move into a rental property after an exchange?
Although there is no absolute standard, anything less than six months of bona fide rental use is probably not enough. A year would be better. If you want to use the property you swapped for as your new second or even primary home, you can’t move in right away.
