Feel free to link to this page
Arizona Real Estate Law
by Christopher A. Combs
The following is for informational purposes
only and is not intended as definitive legal or tax advice. You
should not act upon this information without seeking independent
legal counsel. If you desire legal, tax or other professional advice,
please contact your attorney, tax advisor or other professional
consultant.
1031 Tax Deferred Exchange Not Suggested for Sale of Out-Of-State Property
Question: My husband was recently relocated by his company from California to the Phoenix area. We are renting an apartment in Glendale until we decide where we want to live. Although we sold our personal residence in California, we still have rental homes in California. We are selling one of the rental homes and the sale should close next month. We would like to do a 1031 tax-deferred exchange with the proceeds of the sale of this rental home, and buy a rental home in the Phoenix area. My understanding is that we would need to rent out this rental home to a tenant for six months to a year, before we could move into the rental home as our personal residence. After living in this home as a personal residence for two years, we would like to sell this home and take advantage of the $500,000 capital gains exemption for married taxpayers. My brother is a tax lawyer and says that we will have to live in the home for five years, instead of two years, in order to use this $500,000 capital gains exemption. Is that correct?
Answer: If you use the proceeds from the sale of the California rental home to purchase a rental home in Arizona, you will be eligible for a 1031 tax-deferred exchange. If at a later date you move into the rental home in Arizona as your personal residence, and then sell the home, you will be eligible for the $500,000 capital gains exemption for married taxpayers upon two circumstances. One, you live in the home for at least two years prior to sale, and two, the sale occurs five years after the rental home in Arizona is acquired. In other words, you do not need to live in the home for five years, you need only to live in the home for two of the five years after the rental home in Arizona is acquired. Note: The simple way is not to do a 1031 tax-deferred exchange, but sell the California rental home and pay the federal 15% capital gains tax, plus any California capital gains tax. You could then just buy a personal residence in Arizona and move out of your apartment. After two years, you would be eligible to sell this home, and then take advantage of the $500,000 capital gains exemption for married taxpayers.
|
|
|
|
Arizona Homes for
Sale
MLS homes in metro Phoenix AZ. Addresses shown! No registration.
Easy. Free.
ArizonaHomesCatalog.com
Just Listed Arizona
Homes
Free emails of "Just Listed" Arizona homes. The key to
finding a great home!
ArizonaHomesCatalog.com
|
|
|
