Perhaps Not Home Free

BY GEORGE M. CHRISTOFELY

The first example in “ Home Free ” (Jan. 07, page 40) might not qualify for section 1031 deferral of capital gain as the article stated.

The IRS has used the “intent” of the taxpayer, predominant use and rental-property rules to determine when a property is held for productive use in a trade or business or for investment. That means that in the two years leading up to sale, if the taxpayer utilizes the property for pleasure more than 14 days each year or more than 10% of the rental period (the greater of the two is permitted), the IRS may take the position that it was predominantly a personal-use asset and deny deferability. 

We generally advise clients to live in the property for two years and then rent it for two years just before sale. The replacement property should be rented for two years, with less than 14 days or 10% usage; then it can be converted to primary use after qualifying for the completion of the 1031.

George M. Christofely, CPA
Ocean City, N.J.

 

SPONSORED REPORT

How the election may affect taxation of business income

This report summarizes recent proposals to reform the U.S. business income tax system and considers the path to enactment of any such legislation.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

Did you follow 2016’s biggest accounting news?

CPAs will remember 2016 as a year of new standards and new faces. How well did you follow the biggest accounting events? The 7 questions in this quiz will help you find out