FIVE YEAR HOLD PERIOD TO EXCLUDE GAIN UNDER IRC §121!!
IMPORTANT LEGISLATIVE ALERT REGARDING IRC §1031 TAX
DEFERRED EXCHANGES!!
On October 22, 2004, President Bush signed into law
corporate and foreign tax legislation that also
contained a provision affecting IRC §1031. Under this
provision, a taxpayer who exchanges under IRC §1031 into
a rental house as replacement property that is later
converted into their primary residence, is not allowed
to exclude gain under the principal residence exclusion
rules of IRC § 121 unless the sale occurs at least five
years from the date of its acquisition.
WHAT DOES THIS MEAN???
If a taxpayer acquired property in an exchange to which
IRC §1031 was applied and they subsequently convert said
property to personal use they will have to wait at least
FIVE YEARS from acquisition before they can sell it as
their residence and exclude any gain under IRC §121(a).
The change to the home seller rules of IRC §121 became
effective for principal residence sales occurring on or
after October 22, 2004. Any tax payer who previously
acquired their current residence through a tax deferred
exchange within the past three years will now have to
wait at least another two years before selling their
home and excluding gain. This assumes they meet the two
out of five year occupancy test.
Example: A tax payer sold their rental house two years
ago, completed a IRC §1031 exchange, and moved to the
replacement property last month to occupy it as their
principal residence. Under the new law, they will have
to wait three years before selling the property and
excluding gain under IRC § 121.
If you have any questions, please do not hesitate in
calling me. I’m here for you!
Cindi Poling-Hickey, Exchange Supervisor
1501 E.
MCANDREWS
MEDFORD, OR 97504
541-779-7660 0332/FAX 541 608 9322
EMAIL:
cindip@jeld-wen1031.com