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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

www.jeld-wen1031.com

 

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