Agent

Selling a Starker exchange property

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DEAR BENNY: We own a small single-family home (800 square feet) located on the property adjacent to our primary home. We purchased it using a Starker exchange about 15 years ago. We stopped renting it out eight years ago, when the mortgage was paid off. We now use it as an extension of our primary home, with the living room as a game room, garage and basement as storage, one bedroom as an office, and the other as a guest bedroom. If we were to sell it, would the Starker exchange come back into play? What would happen with the deductions taken during the "rental phase"? --Jim DEAR JIM: When you did the Starker (Section 1031) exchange, you sold one property (called "relinquished") and exchanged it for another (called "replacement"). You were able to avoid paying capital gains tax, but the tax basis of the relinquished property became the tax basis of the replacement. You have now abandoned the investment. The bad news is that you cannot take adv...