1031-121 Example
Suppose you own a commercial property in which you have a
$400,000 capital gain. But rather than trade up for another investment property, you want to exchange for a "dream home" where you and your spouse can enjoy the good life. This can be done with careful planning and a Starker exchange.
The first step is to sell your investment property and have the sales proceeds held by a qualified third-party accommodator. The second step is to use those sales proceeds to acquire your ultimate dream home.
But that property must be a rental at the time of acquisition. Most tax advisers suggest renting it for at least six to 12 months after purchase to show rental intent. Then you can move in and convert it to your personal residence.
However, before you can sell the acquired residence and claim your $250,000 or $500,000 principal residence exemption of IRC 121, the Oct. 22, 2004 tax changes of Internal Revenue Code 121(d)(10) now require you to own the acquired residence at least five years and live in it as your principal residence at least 24 of the 60 months before its sale.
Next: Making Sure You Qualify Conditions to Qualify Link
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