Can I avoid 1031 Exchange and take the $250K exclusion on rental?

Question

I've Googled this extensively, and asked my accountant (who is not a real estate CPA)--

Here are the basics:

--We built the house in 2000

--Divorced in 2009, house was quitclaimed to me

--I lived in the house until mid-2011

--Rented it out from mid- 2011 to present

I am selling it now, moving out of state for a job,and have been trying to avoid a 1031 exchange, AND paying $$$ in taxes. I read IRS Publication 523, to qualify for the exclusion of gain, and it states that:

"You meet the standard requirements if any of the following events occurred during the time you owned and lived in the home you sold" -

• --Became divorced or legally separated

Since I did get divorced while owing the home, am I able to claim the $250K exclusion? I understand that I will be taxed on the recapture of depreciation...and am ok with that, rather paying tax on the whole gain?

•

Dave Foster · Answer

@Sherry Wirtz And since it's been a rental since 2011 you'll have a substantial depreciation recapture bill anyway. So again the 1031 looks like the ticket for you.

Sherry W. · Answer

Thanks, Dave! That's what I needed to know. I was trying all avenues to avoid taxes :) which will be substantial. Cheers! ~Sherry

Dave Foster · Answer

@Sherry Wirtz the statute allows you to prorate your tax free exemption according to the time you actually lived in the property during the 5 year look back. You have not lived in the property at all during the 5 year look back. So you would not eligible for any of the prorated gain. Subsequent to your divorce you converted the property to a rental and it has been reported as such for the last decade. Ao a 1031 is the answer.

Can I avoid 1031 Exchange and take the $250K exclusion on rental?

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