2008 IRS 1031 Exchange Rulings and Changes
From Mary Lou Schwab, Vice President Bankers Escrow Corp.
The IRS provided two major rulings for 1031 tax deferred exchange property during 2008. If you are planning on converting a rental, second home or a 1031 exchange property into a primary residence in 2009 take note! The Housing Assistant Act of 2008 will limit your primary residence exclusion amount. Additionally, Revenue Procedure 2008-16 set up difficult to meet vacation property 1031 rules. Scroll down to review these important tax changes.
Primary Residence Exclusion Limitations For Converted Rental & Second Homes
Currently a taxpayer can exclude up to $250,000 of gain realized on the sale of a primary residence ($500,000 for couples filing jointly) if they have owned and occupied the residence for 2 years during the 5 year period preceding the sale. Additionally, if the property is converted 1031 exchange property, a taxpayer is required to own the property for more than 5 years prior to the sale.
Effective January 1, 2009 this gain exclusion will be limited for periods allocable to "nonqualified use". Nonqualified used refers to periods that the property is not used as the taxpayer's primary residence. Consequently, the gain exclusion will be reduced with a complicated calculation for the pro-rata period of the nonqualified use.
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Your friend in the Real Estate business,
Shelli Dore
www.ShelliDore.com