12 May Does 1031 exchange work for in-state move?

Q. I’m thinking of moving to a different part of the state, and I will buy a house that costs about the same as mine. Can I do a 1031 exchange, and exactly how does that work and what are the benefits?
— Homeowner

A. It sounds like the home you’re asking about is a personal residence and not an investment property.

1031 exchanges are only for investment properties.

If you do use a portion of the home for business, that portion could qualify as 1031 exchange property, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

Hook said a good example would be the sale of a two-family home where one unit is the primary residence and the other is a rental unit.

“Assuming that you meet all other requirements for a 1031 exchange, you can allocate the portion of the gain to the rental unit and defer the gain,” Hook said. “Of course this only works if the property you receive back as part of the exchange is used for rental purposes as well.”

Hook said if this is indeed is a personal residence that you own and have lived in for at least 24 of the past 60 months, you may be entitled to exclude up to $250,000 of gain on the sale of the home. This exclusion is permanent and can be as high as $500,000 if you are married, Hook said.

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This story was first published in May 2017.