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Discussion Forum Index --> General Chat --> 1031 EXCHGE/REPLACEMENT BECOMES PRIN RES

DgR (talk|edits) said:

7 June 2010
Saturday, I misposted in the discussion section on Tax Almanac under SEC 1031 HOLDING PERIOD. I have retired clients on extension just back from their annual winter in Mexico. They advised via e-mail for their extension of a 1031 exchange with $15K cash out which I figured on the extension to be sec 1250 income. Approximate realized gain is $437K, $72K of sec 1250 dep'n, which if fully taxed, would of course help finance Obama's Gulf clean-up. Their exchange appears complete, except now they tell me that the replacement rtl pty (8/09) is planned to become their principal residence in Sept '10 (subject to current prin res up for sale now being sold, which will most likely happen) and that their exchanger (commonly known nat'l name) told them OK after one year to convert to principal residence. I gave them a copy of Rev Proc 2008-16, (mostly a safe harbor more written for 2nd home/vacation property exchanges, but applicable in this case) which sets a two years of qualifying use (meaning rental). Am I on the right track if I advise them that there are no black & white rules here, but it depends upon their original intent, then play dumb and they're in the audit lottery?

Dwacpa (talk|edits) said:

7 June 2010
True, it depends on original intent, but that intent is evidenced by "facts and circumstances". Whether it be the next year, one full year, the second year is subject to debate. But it would certainly help if there was actual business/investment use such as having tenants in an arm's-length lease. IRS would have a much harder time claiming original intent if they held it vacant for a few months and, perhaps, listed it with a realtor at an unreasonable price, which is not uncommon.

DgR (talk|edits) said:

7 June 2010
Property was rented out from the beginning thru realtor/agent/mgmt w/1099 rent income. Of course it would help if there was a long term lease > 1 year, preferably two. I probably need more discussion w/client, but at some point it gets like, I don't want to know. Have to go now to outside apptmt.

Ddoshan (talk|edits) said:

7 June 2010
There is a recent tax court case Goolsby v. Comm T.C. Memo 2010-64 involving a 1031 exchange and questionable personal residence situation that may or may not shed some more light.

R2 (talk|edits) said:

7 June 2010
Apply for a PLR. Most of the existing PLR's set a 2-year minimum rental period.

EasternPA (talk|edits) said:

9 June 2010
>>help finance Obama's Gulf clean-up

DgR, I'm curious how you would have handled the BP oil spill.

Jeff-Ohio (talk|edits) said:

9 June 2010
^ *Grabs Popcorn*

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