res. rental to 1031 to res.

Can I 1031 exchange a residental rental then move into the exchange property for 2 years and then sell it as my residence only paying back depreciation?

After you own it five years, you can use it as a personal residence for two. Until a few weeks ago your idea was viable, but the tax law was changed.
good luck,

Just to clarify what Ray said,

Property acquired in a 1031 exchange, converted to a primary residence, then sold will qualify for the capital gains exclusion under IRC Section 121 if all of the following conditions are met:
[]The property is first used for a qualified investment purpose at least one year prior to conversion to a primary residence, and,[]the taxpayer occupies the property as his primary residence at least two of the five years prior to sale, and,[*]the property has been owned at least five years prior to the sale.

Converting to a primary residence too soon risks disqualifying the exchange and making the sale of the relinquished property a taxable event.

DaveT is right on the money.

I have a possible situation that ties-in to the above question. I previously owned a residential property with a rental unit. I sold that property, with a 1031 on the investment portion of the transaction. I bought a similar residential property with a basement rental unit to complete the exchange. I have been living in the main portion of the house while renting the apartment for the last 2 years. I held the previous property for a long period and am deferring a substantial gain. I have a possible change in living situations where I will not need the larger space. I am thinking about moving into the basement apartment after my current tenant leaves and renting the main portion of the house. If I stay in the basement apartment for the specified 2 years, 5 years total – can I then treat the gain on the basement as if it were my residence (and of course treating the much smaller likely gain on the main house as investment income)?

Chances are that you can treat the whole property as your primary residence, take your capital gains exclusion, and you will only be liabile for the unrecaptured depreciation.