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Can apartments be traded tax-free for a rental house?

Owners fear IRS will recapture deducted depreciation
Published on May 17, 2006

DEAR BOB: My wife and I own a four-unit rental apartment building that we want to trade for a rental house where we would ultimately like to live. Would such a trade qualify as tax-deferred? If the answer is "yes," will Uncle Sam recapture and tax the depreciation we have deducted on the rental apartments? --Corrie A. DEAR CORRIE: As long as you trade equal or up in both price and equity, your proposed exchange of the apartment building for a rental house can qualify as a tax-deferred exchange using Internal Revenue Code 1031. However, the acquired rental house should be rented to tenants at least six to 12 months to show rental intent at the time of the exchange. Purchase Bob Bruss reports online. If you plan to do a Starker delayed tax-deferred IRC 1031(a)(3) exchange, please be aware you have only 45 days after the sale of the apartment building to designate the replacement rental house and up to 180 days to complete the acquisition. Because this is a tax-deferred exchange, your dep...

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