What happened to my tax free house?
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The US and Canada have a completely different method of dealing with the tax free sale of a unit. In Canada, if you moved into a house that was rented and lived in it for two years, the property could become tax free.
In the event that you had rolled one rental into another in a section 1031 tax deferred exchange, if you moved into the second rental for two years, the whole building qualified for the $250,000 per person tax free exemption on the family home.
What this means in general as I read it is that the owner of a principal residence acquired as part of a like-kind exchange now has to live in it for Five full year after the date of acquisition to qualify for the $250,000 per person tax free sale.
This only applies to a limited number of people, but if it is YOU, it could be devastating.
See new paragraph (10) in section 121(d) .
A solution if you have to move is to rent the house out again and then sell it in another 1031 exchange. Then convert the NEW rental into a primary residence and Move into the new house and make sure you live in it for five years.
For this one you will likely need help.
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