Is it possible to convert an investment property into a primary residence and eventually sell the property applying Section 121?
The IRS realizes that a person’s circumstances may change; therefore, a property may change in character over time. For this reason, it is possible for an investment property to eventually become a primary residence. If a property has been acquired through a 1031 Exchange and is later converted into a primary residence, it is necessary to hold the property for no less than five years or the sale will be fully taxable. The Universal Exclusion (Section 121) allows an individual to sell his residence and receive a tax exemption on $250,000 of the gain as an individual or $500,000 as a married couple. In order to gain this benefit, the investor will need to live in the property for an aggregate of 2 of the preceding 5 years. After the property has been converted to a primary residence and all of the criteria are met, the property that was acquired as an investment through an exchange can be sold utilizing the Universal Exclusion. This strategy can virtually eliminate a taxpayor’s tax liabi
Related Questions
- Are there different treatments for Short Selling a property that is your primary residence vs a property that was purchased as an investment?
- Is it possible to convert an investment property into a primary residence and eventually sell the property applying Section 121?
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