Combining 1031 exchange and a section 121 exclusion

[Geoffrey You]

Hi all, 

Hope y'all are doing well in this crazy market! I was hoping y'all can help me answer some questions with my complicated situation. 

I am currently in the midst of selling three of my rental properties in Greenville, NC. I would like the proceeds of those properties (via 1031 exchange) to be used as a down payment for a hybrid residential-commercial property that I am looking to purchase in NYC. This replacement property has 3 residential units and 1 commercial unit on the main floor.

My mother is also looking to sell her primary home in NYC and is interested in using her profit to do a section 121 exclusion towards the same property.

Essentially, we are hoping to put both of our names on the replacement property. I am hoping that the profit from selling my rental properties (1031 exchange) together with the profit from selling my mother's primary home (section 121) can be used as down payment for the replacement property. My mother would then move into one of those 3 residential units. 

Is this a feasible plan? Any advice would be greatly appreciated!

Geoff

[Wayne Brooks]

@Dave Foster ??

[Jon Taylor]

Yes. It's doable.

There are likely multiple ways to structure a transaction like this. The one way that I have seen this done in the past is by holding title to the property as joint tenants in common.

This will allow the same property to be treated as both investment property and a primary residence. You can use something like square footage to delineate the ownership or appraised value of the units.

This effectively creates two separate properties and two separate transactions. 

[Dave Foster]

@Geoffrey You, easily enough done.  @Jon Taylor is correct, you would each take title as tenants in common.  You will need to be purchasing at least as much investment real estate as you sold to defer all tax.

But your mom will not have any reinvestment requirements.  Her proceeds are tax free with the 121.  So she doesn't have to be on the deed unless you want her to for some reason.  What this allows is for you and her to adjust your %ownership as tenants in common so that you take title to enough to satisfy your exchange.

[Basit Siddiqi]

Looks like the property will be required to be purchased as Tenants in Common(TIC).

Do-able but adds some additional steps.