1031 Exchange Eligibility?

[Chris Arnold]

Closed on new construction home in March of '21. Initially assessed as vacation home, but thought I would be making it my primary home in '22. Changed secondary to primary, assessed at 4% tax rate in '22. Turns out I cannot use this as my primary residence due to kid school zoning issues. I intend to change back to secondary home, assessed at 6% this year ('23). If I choose to sell the home, I want to roll the gains into other investment properties via 1031. Given the back and forth in '21 and '22 tax records, what is required for me to ensure I can leverage 1031 to avoid capital gains after the sale? Thanks!

[Dave Foster]

@Chris Arnold I think you'd have a tough time selling this as an investment property for a 1031 exchange.  You actually declared it your primary in 22.  And prior to that it doesn't sound like you treated it as investment if 21.

If you want to make this property eligible for a 1031 exchange you will need to establish your intent to hold it for investment use.  If you haven't filed your tax return for 2022 yet you may want to hold off on moving that property to your schedule E.  See if you generated any income at all on it in 2022.  Including using it for business purposes.  Declare that rent and put it on your 2022 tax return.  And generate some rent in 2023 before deciding to sell.