Home exclusion & 1031 exchange

[mj46]

1.  A taxpayer tore down his principal residence and built a building with 6 condos in its place.  If she sells all 6 condos, is she eligible to take the home exclusion if she meets the requirements for years lived there as her principal home? 

2.  Assuming that she is eligible for the home exclusion and she exchanges the new property (6 condos) for like-kind property instead of selling the property, how is this reported on Form 8824?

3.  What constitutes a property being investment property as opposed to being held  primarily for sale (which does not qualify for the tax-free exchange)?

[dkh]

I do not have answers - I have a question.  How could 6 condos be eligible for the home exclusion? Taxpayer can only live in one of the six.

[TaxGuyBill · Accepted solution]

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@mj46 wrote:

1.  A taxpayer tore down his principal residence and built a building with 6 condos in its place.  If she sells all 6 condos, is she eligible to take the home exclusion if she meets the requirements for years lived there as her principal home? 

Is she living in one of the condos?  If not, she didn't sell her Principal RESIDENCE.  She tore that down.  I suppose MAYBE you could argue the gain from the sale of the land could part of the Principal Residence exclusion.

[mj46]

Of course, I realize that.  She lived in the home that was torn down.  One of those condos could equal at least the home exclusion amount.  But the question is, is any part of that sale eligible for the home exclusion?

[TaxGuyBill]

I pretty much went over that.  If she didn't sell her Principal Residence, why would you think she would qualify for the Principal Residence exclusion?

And as I said before, maybe you could have a good argument in regards to applying the exclusion to the sale of the land, because that WAS part of her Principal Residence.

[BobKamman]

"A taxpayer tore down his principal residence and built a building with 6 condos in its place.  If she sells all 6 condos, is she eligible to take the home exclusion"

Was the surgery done before or after the condos were built?

[qbteachmt]

"One of those condos could equal at least the home exclusion amount. But the question is, is any part of that sale eligible for the home exclusion?"

If that sold condo isn't sold until after he/she lives in it as their primary residence to meet the residential exclusion requirement that applies, then sure.

But, if you build 6 and move on to selling all 6, it's pretty hard to also prove that any of them also was your primary residence.