can i use 1031 exchange funds to purchase a tiny home?

Question

I can't get a good answer from my 1031 exchange company and I need to act quick on an opportunity. I'm reading that because it's on wheels, it's considered an RV and not real estate. Assuming the answer is no since you need to exchange like for like. Closing on a 4plex that was rental property. If it's not on wheels does that change things?

Thanks! I'm so intrigued and really want to do this!

Dave Foster · Answer

@Brenda Turner, The issue of wheels/no wheels is not the question.  Your intermediary should have told you that the issue is how that tiny home is taxed.  If it receives a registration certificate from the DMV as a trailer then it is not real estate and cannot be part of the 1031.  If it is attached (as in deeded as an improvement) to the property then a property tax bill is prepared by the county real estate appraiser.  And that makes it real estate.

It's the same distinction as a mobile home that you own the lot and home together (real estate and 1031 eligible) and a lot you purchase with a rental trailer on it (only the lot is real estate).

LIke kind is any type of investment real estate for any other type of investment real estate.  But the definition of what is real estate is left in large part to the state taxing authority.

Alex Olson · Answer

@Brenda Turner You can 1031 exchange in to any kind of real estate from any kind of real estate. Farmland to apartments. Single family home to office building. Apartment to apartment. If you say tiny home - is this a stationary investment real estate property? Meaning - does it have an address? If so, it would be considered real estate and if you are buying it as an investment property (renting it out for income) it will classify. If you are buying it to live in or live in part time, it is not eligible for 1031 exchanged, generally.

Rachel H. · Answer

@Brenda Turner From my understanding, it must be a like-kind exchange meaning if what you're exchanging it is classified as real estate (attached to land) then you must also exchange it for a similar asset. If the tiny home is classified as personal property (not attached to land), then to me it would not be a like-kind exchange. Though if the tiny home is classified as real property (attached to land) then it may qualify.

If your 1031 exchange company is not clear on the rules, you may want to look for another company to work with. Since they are in the business of doing this day in and day out, they should be able to provide you with a straight answer.

Should you need referrals on 1031 exchange companies in your area, you may want to check around and talk to a few title companies.

Hope that helps!

can i use 1031 exchange funds to purchase a tiny home?

Most Popular Reply