When it comes to taxes, the IRS does often look at “intent” to determine whether certain things qualify for certain tax rules.
Such as, when you purchase a property, do you intend to hold it for investment purposes or is your intent to fix it up and sell it right away?
I got a question today from a military individual stating he had purchased a property that was “going to be” his primary residence, but he had never lived there and had rented it out since purchase. He had been renting in another state for the last few years.
Now he wants to sell and wanted to know if he can qualify for the personal residence exemption.
Unfortunately, he can’t. To satisfy the test for exemption you have to both own and reside in a primary residence for at least 2 of the last 5 years. Intent to live there does not come into play unless you actually do.
And, no, it also doesn’t matter if he sells the “intended” house and buys a new primary residence and lives there immediately. He still doesn’t qualify for the exemption.
One possible option, if he is patient, is to do a 1031 exchange on the property he is selling and purchase a home he would eventually like to live in. If he rents out the new place for a couple of years, and then moves in, he can eventually (after 5 years) in this case, qualify for the personal exemption when he sells.
Paula Straub
760-917-0858
savegainstax@gmail.com
http://www.savegainstax.com/
Fill out a Qualification Questionnaire and find out if you qualify to hang onto your capital gains. http://www.savegainstax.com/qq.html
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