1031 Exchange of primary residence - can it be done?

[Prithvi Sri]

I bought a home in bay area fifteen years ago for 750K. Lived there for many years and left to LA about 18 months ago and rented to someone as soon as I moved. I sold the property a couple of weeks ago for 1.65M and I am in the middle of escrow. The house is fully paid and there is no mortgage. I assumed that I am eligible for 500k capital gains exclusion which leaves me with approx 350K in capital gains. But I read an article somewhere that a primary residence converted to a rental property can benefit from both 500k capital gains exclusion as well as 1031 exchange. I don't need the money right away so if I can do a 1031 exchange to save the taxes on the 350K, I would like to consider doing it. Can someone who has done 1031 exchanges tell me if it is possible and if it is worth going through the pain. Thank you for your help.

[Bill Exeter]

Hi @Prithvi Sri, 

Yes, you certainly qualify for a 1031 Exchange.  You moved out of your primary residence and have rented it long enough to prove intent to hold as rental property. 

You would qualify for the $500,000 121 Exclusion since you can still say that you have lived in the property for a total of 24 months out of the last 60 months (2 out of the last 5 years).  

You would only have to reinvest $1.15 million since you will use the 121 Exclusion.