does this work as a 1031?

[Adam Widder]

Hey BP,

Currently we're hoping to be closing on a SF home for us. our plan is to buy this Sept 2018 and put some sweat equity in it. (it looks like walking into the 80s!) Then september 2019 we'll be moving to another state. At that time we'll rent it out for a year. after that year is passed now September 2020, we would list it. Can i then 1031 that property to a MFR in the current state?

My understanding is the 1031 has to be an investment property, and be an investment for 1-2 years minimum. Of course we'd follow the necessary 1031 rules, 45 days to find new properties then 180 days to purchase one of said properties.

Thanks!

[Dave Foster]

@Adam Widder, It is true that property that qualifies for 1031 is property that you have the intent of holding for productive investment use.  It's grey as @Jessica Zolotorofe says because there's no statutory holding period.  Only what you describe as intent.  

Converting a property to rental is no problem at all.  Although If you were to buy this and move in for a year and then you had to move to another state you should be eligible for a prorated sale under sec 121 of your primary residence.  That would let you take 50% (since you only lived in it for one year) of the gain tax free up to $500K.  So that's another consideration.

Back to 1031 - Most folks feel comfortable with a hold of more than one year.  But there can always be circumstances where a holding period of less (or more) would be needed for you to demonstrate your intent.  It is entirely conceivable that you could be moving and wanting to convert this property into a rental to see how it goes.  If after a year you decided that being a long distance landlord didn't make sense I would see no problem at all with a 1031 sale at that point.

EMAW!!