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    1031 exchange

    My client has a rental that she did a 1031 exchange for another house in September. The other house is not rented because she is having $35,000 of improvements done to it right now. And.... she was told that she only had to rent it for just 2 weeks for the next 2 years.

    (I think she is wanting to move into it..is just my gut feeling).

    Can anyone tell me if.... since the new property is not rented out yet, does it qualify for the 1031 exchange? No Cash was received. She did buy up $100,000. It was handled by a 1031 exchange facilitator etc.

    MY 2 questions:

    1). Does it qualify for the 1031 exchange if the property is not rented out and not available to rent out yet.

    2). Does it qualify if she only rents it out for 2 weeks a year for the next year?

    How should this be handled?
    Any input on this would be appreciated.
    Thanks

    #2
    Originally posted by nwtaxlady View Post
    My client has a rental that she did a 1031 exchange for another house in September. The other house is not rented because she is having $35,000 of improvements done to it right now. And.... she was told that she only had to rent it for just 2 weeks for the next 2 years.

    (I think she is wanting to move into it..is just my gut feeling).

    Can anyone tell me if.... since the new property is not rented out yet, does it qualify for the 1031 exchange? No Cash was received. She did buy up $100,000. It was handled by a 1031 exchange facilitator etc.

    MY 2 questions:

    1). Does it qualify for the 1031 exchange if the property is not rented out and not available to rent out yet.

    2). Does it qualify if she only rents it out for 2 weeks a year for the next year?

    How should this be handled?
    Any input on this would be appreciated.
    Thanks
    It's been a long time since I researched 1031s, but off the top of my head I would say it should be rented full time for at least two years to pass an audit muster.

    Comment


      #3
      Originally posted by nwtaxlady View Post
      My client has a rental that she did a 1031 exchange for another house in September. The other house is not rented because she is having $35,000 of improvements done to it right now. And.... she was told that she only had to rent it for just 2 weeks for the next 2 years. (I think she is wanting to move into it..is just my gut feeling).

      Can anyone tell me if.... since the new property is not rented out yet, does it qualify for the 1031 exchange? No Cash was received. She did buy up $100,000. It was handled by a 1031 exchange facilitator etc. MY 2 questions:

      1). Does it qualify for the 1031 exchange if the property is not rented out and not available to rent out yet.
      2). Does it qualify if she only rents it out for 2 weeks a year for the next year? Thanks
      See Revenue Proc 2008-16 for the safe harbor requirements.
      Basically she must rent it out at least 14 days to other parties for EACH of the next 2 years;
      And she cannot use it for personal use (i.e, 14 days or 10% of the time rented out, whichever is greater) for EACH of the next 2 years.
      Last edited by Burke; 03-06-2018, 09:02 AM.

      Comment


        #4
        Thanks so much!

        Originally posted by Burke View Post
        See Revenue Proc 2008-16 for the safe harbor requirements.
        Basically she must rent it out at least 14 days to other parties for EACH of the next 2 years;
        And she cannot use it for personal use (i.e, 14 days or 10% of the time rented out whichever is less) for EACH of the next 2 years.
        Thanks, this Rev Proc 2008-16 helps me!

        So if she rents it for just 2 week because she was told by the 1031 exchange facilitator that all she had to do is rent it for 2 weeks the next two years, then does that mean she can't use if for more than 14 days and no more? I think they told her the 14 days, but didn't mention the other part to her about personal use.

        Or if she rents it for 2 months (60 days) then she can only us it 6 days or no more than 14 days?

        Says taxpayer's personal use of the dwelling unit does not exceed the greater of 14 days or 10% of the number of days during the 12 month period that the dwelling unit is rented at fair rental.

        So my understanding here is that if she doesn't rent it out long at all then she is maxed at the greater of which would be only 14 days she can personally use it.


        I am "thinking" she has been using it already more than 14 days in 2018 personally.

        Ok, what would you do in my situation?

        Comment


          #5
          Originally posted by nwtaxlady View Post
          Thanks, this Rev Proc 2008-16 helps me!

          Or if she rents it for 2 months (60 days) then she can only us it 6 days or no more than 14 days?
          Says taxpayer's personal use of the dwelling unit does not exceed the greater of 14 days or 10% of the number of days during the 12 month period that the dwelling unit is rented at fair rental. So my understanding here is that if she doesn't rent it out long at all then she is maxed at the greater of which would be only 14 days she can personally use it.
          I am "thinking" she has been using it already more than 14 days in 2018 personally.

          Ok, what would you do in my situation?
          I am thinking she may have disqualified the 1031 tax treatment by using it for personal purposes for more than 14 days.

          Comment

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