Member: FEA
What's New

Congress has passed new legislation with regard to the recognition of gain from the sale of a principal residence acquired in a like-kind exchange.

On October 11, 2004, Congress passed legislation, which the President is expected to sign into law within the next several weeks.

This legislation provides that the exclusion for gain on the sale or exchange of a principal residence does not apply if the principal residence was acquired in a like-kind exchange in which any gain was not recognized within the prior five years. This is effective for sales or exchanges of principal residences after the date of encactment.

Under present law, a taxpayer may exclude up to $250,000 ($500,000 if married filing a joint return) of gain realized on the sale or exchange of a principal residence that was acquired in a like-kind exchange within the prior five years.

The new legislation provided that the exclusion for gain on the sale or exchange of a principal residence does not apply if the principal residence was acquired in a like-kind exchange in which any gain was not recognized within the prior five years.

Simply put, if you do an exchange in which the replacement property ultimately becomes your principal residence, you must hold the property for five years from the date of acquisition in the exchange to qualify for the $250,000 or $500,000 (whichever applies) exemption upon sale of the principal residence.

If not doing an exchange, the exemption applies if you have held the property as your primary residence for 24 out of 60 months (2 years out of 5.). If doing an exchange, you must hold the property for at least 5 years to claim the exemption.

As always, you must check with your accountant or financial adviser regarding your tax situation.

Calculate Your Capital Gains Tax

JoAnne
Here's what's new with 1031 exchanges.
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