Playing by the 5-year rule
By Tom Kelly, Wednesday, January 11, 2012.
The lackluster housing market has many investors looking for bargain properties, sometimes in bunches. Buyers are getting more creative about funding their purchases, rethinking the role of real estate not only for their portfolios but also for their residences.
In a recent example, an older couple sold their home and purchased two Arizona golf-course condominiums with the proceeds — one for their primary residence and another as a rental — and still put some money in their pocket. What made the deal interesting was that they had purchased the original home six years ago via a tax-deferred exchange.
While investors had turned rental properties into principal residences for years, the timing for claiming the $500,000 principal residence exemption ($250,000 for a single person) on a home acquired via an exchange wasn’t clarified until late 2004.
Before then, taxpayers were left to guess how long they had to hold an investment property before deeming it a primary residence — or when it was safe to sell it and pocket any gain.