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

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.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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