Change of Use of a 1031 Exchange Property

[Joel Dicks]

Hypothetical: Out-of-town owner has a 3-apartment rental house. Owner's in-town elderly parent requires care so owner moves into 1 of the units to care for the parent. Does this trigger a taxable event by violating the 1031 Exchange rules?

[Dave Foster]

@Joel Dicks, After a 1031 has occurred?  Probably not.  If it's been a year or so then it is perfectly fine to convert to primary.  There is a safe harbor from the IRS at 2 years.  

And the law says that it must have been their intent to hold that new property for investment use.  As long as this represents a change in their intent and not revealing their intent all along there are a number of reasons why this could work.

If the moving van is backed up the the property with their stuff in it the day they close on it then that's a different story.