1031 exchange and residency

[Heyward Lovett]

I recently completed an exchange and would like to know if I'd be ok legally if I lived in the property. The property was purchased in my personal name and later transferred to an LLC.

[Dave Foster]

@Heyward Lovett, There is a lot of speculation over this topic.  The statute is absolutely silent about a time frame.  There is case law and some rulings that speak to two years, two calendar years, and two tax years.  There was even a misguided mantra in our industry of "one year and one day" for a bunch of years.

The bottom line is that any specific time frame is a guess based on a very very small body of case law.  The standard is your intent and how you can demonstrate it.  You don't mention why you're wanting to do this.  So the forum has concluded that your intent when you bought it was to move in.  That would disqualify your 1031 exchange if you moved in under those circumstances.

However, if you purchased with the intent of holding for productive investment use then moving in would represent a "change of intent" and could be justified.    There are cases where property has been held for more than 10 years and exchanges disallowed.  And there are cases where the hold has been in weeks or months and the 1031 has not been affected.

The bottom line is that your unique situation is going to dictate the possibilities.  And no one has the totality of your situation in hand more than your accountant and you.  What honestly was your intent?  What has been your past practice?  What compelling forces are causing this change?  What evidence is out there for your intent?  All of these are questions for you and your accountant to grapple with and then decide.

The initial answer is not no or yes.  The initial answer is to look in the mirror and ask a question - What was your true intent and how would you demonstrate that intent?