Are capital gains on the sale of a replacement home via a 1031 exchange considered long-term or short-term?

by Dafna Meltzer, CPA | Sep 19, 2018
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I sold a home on a 1031 exchange and then sold the replacement home, all during this year. I have three questions: Is the sale of the replacement home long-term or short-term capital gains? If not, then since both houses in this 1031 exchange were sold in the same year, can the 1031 be dropped or cancelled if I choose? Do I have that choice?

Based on the information provided, it is probable that the IRS will either consider the transaction "not like-kind" (the new property was not held for investment), and/or  the second sale will be considered "short-term."

Either way, you can and should report the full gain on the sale of the first property.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Dafna Meltzer, CPA, is with Meltzer & Meltzer CPAs in Elkins Park, Pa.

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