Non qualified use and the home sale exclusion

[lburdickandassociates]

When you sale a house that was both your residence and a rental during the time owned, can you actually qualify for full exclusion? What about the 1031 exchange, can you really EXCHANGE INTO YOUR DREAM HOME? Maybe I am a little tired or naïve, but I am pretty sure the non qualified states clearly-mixed use and what that really means is taxable gain on some of that transaction. Someone sometime has to pay the deferred taxes on the gain, and if you rent out your entire home 1046 days out 2927 days of ownership, you will get a partial exclusion not  full one. 

[qbteachmt]

"can you really EXCHANGE INTO YOUR DREAM HOME?"

Back before the late 1990s, when you sold your primary residence, you would buy a new one at the same or higher cost, to avoid needing to report and pay taxes on the gain from the sale.

That no longer applies.

Tax regulations change.

[taxes96786]

If used as personal residence for two of last 5 years of ownership the exclusion applies. If less than two years it may qualify of an allocation for personal time. 1031 is irrelevant

[qbteachmt]

"1031 is irrelevant"

I would not call it irrelevant so much as "no longer applies." The question is a good question, but the concept is from 30 years ago. Someone is not staying current on the tax rules, or reading some bad guidance. The joke here is, don't take tax advice from the barbershop.

[TaxGuyBill]

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@lburdickandassociates wrote:

can you actually qualify for full exclusion? 

if you rent out your entire home 1046 days out 2927 days of ownership, you will get a partial exclusion not  full one. 

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Maybe.  What are the dates of rental and dates of personal?

[lburdickandassociates]

Literally something like this Bought end of 2013           days

2014-personal residence                                           365

2015-"                 "                                                    365

2016 residence until 12-15-2016                              349                           16

2017rental all year                                                                                       365

2018  "     "                                                                                                365

2019 moved back into around 10-30-2019                65                            300

2020 personal residence                                         365

2021       "    "                                                         365

2022  "                  sold 02-22-2022                        53

total                                                           2973                            1046

[lburdickandassociates]

and the part about 1031 exchange is not irrelevant. Same client was informed she could move into or live in one of the properties she received in 1031 exchange, within 2 years of the swap. I would love to get some feedback on a "flyer" the taxpayer provided me she received from an "exchange company". The scary part besides how much she will owe is how mislead she been about capital gains in regards to her sale of a house that had mixed use and thus would not get a full home sale exclusion. 

Long time client will be bummed to see her go but after reading the flyer provided, I realized those are not the type of taxes my office prepares!!

[TaxGuyBill]

As you said, they have Nonqualified Use, so roughly 35% of the profit can't be excluded (plus the gain due to depreciation).

I had said "maybe" because if the all of the rental period was at the end of the ownership, there would not have been Nonqualified Use.  But making it their Principal Residence AFTER the rental is what triggered the Nonqualified Use.

If the was truly mixed use, meaning part of the home was used for rental or business while the taxpayer was also residing there, then the business/rental portion would have qualified for a 1031 Exchange if the new home was mixed, or purely business or rental.

If I remember correctly, the new home being used for business/rental for 2 years may only be a Safe Harbor.  I have in the back of my mind there have been some isolated ruling that MIGHT allow only one year, and possibly even less if there could be substantiation of the intent to have it business/rental longer.

[qbteachmt]

"and the part about 1031 exchange is not irrelevant."

This specifically is what was asked: "What about the 1031 exchange, can you really EXCHANGE INTO YOUR DREAM HOME?"

And the answer is, not any longer. That changed in the 1990s.

You didn't ask the same thing that you are now stating applies to this specific client. We can't answer something we hadn't been asked, yet.

"I would love to get some feedback on a "flyer" the taxpayer provided me she received from an "exchange company"."

We can't see that. Is there a date on it?

"The scary part besides how much she will owe is how mislead she been about capital gains in regards to her sale of a house that had mixed use and thus would not get a full home sale exclusion."

You cannot cry for a client who made tons of money and needs to pay some taxes on it. I'd swap places with that every time. Boo hoo.

I would expect you can learn what applies and how to use that for the tax prep. Are you using any IRS or web resources, such as:

https://www.1031crowdfunding.com/converting-1031-exchange-to-principal-residence/

Just watch for dates, since these rules changed a few times in the past 2  or 3 decades.

[taxes96786]

qtb you are reading into my post that which is not there. The question was about the exclusion amount...and to calculate this the 1031 is irrelevant.