Steve...I use the 1031 program every chance I get.  The above house is what I could handle about 10 miles fom the nearest road.

You're close it's two miles up a dirt road but what a great view..listed at $700,000 I'll put you on the contract if you want.

Steve:

Great explanation of split treatment of a primary residential property(section 121, capital gain tax exclusion)  and investment property (section 1031, capital gain tax deferral). I'd like to add that section 1031 provides tax DEFERRAL. The IRS hates the "A" word: AVOID. In fact there can be substantial penalties if the IRS determines that your primary objective is "tax avoidance."

As a review for your readers (you obviously, have substantial 1031 experience), I've provided a quick overview of 1031:

In a 1031 exchange the capital gain tax (and other money due on the sale of appreciated property, like depreciation recapture) is deferred until some time in the future when the taxpayer does not do a 1031 exchange. Many people "swap until they drop," which can be a useful estate planning strategy to leave wealth to their heirs (talk to a competent estate planning attorney about your best strategy).

Remember, that the burden of substantiating the validity of the exchange is  up to the taxpayer and their tax advisor. In situations like the one you describe, it is often helpful to have an appraisal done by a competent appraiser. The taxpayer's accountant should be involved so that the sale contract matches how he has been describing the property on the previous years' taxes.

Steve, I'm looking forward to reading more of your posts.

Thanks Lisa, I am Grateful for your thoughts, and will edit my blog to remove the "avoid" I have no friends at the IRS....but for the record I'm sure they are very nice people..especially after a few drinks.. Steve

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