VA Househack 1031 Exchange w/ 121 Exemption
Here’s the skinny:
I am a veteran with a VA loan for a fourplex in which I reside in one of the units. I have lived here for three years, meeting the 2/5 year requirement for Section 121 Exemption. I am considering the sale of the property to partially fund the purchase of another fourplex (like kind).
There seems to be confusion with my lender on the following points:
1. I live on the property, so a 1031 Exchange may not apply. (I am not sure why it wouldn’t apply to the 75% of the property that is being used as investment property.)
2. The other units are investment property, so it wouldn’t qualify for Section 121 Exemption as that is only for a primary residence. (I am not sure why the 121 Exemption wouldn’t apply to the 25% of the property I live in.)
3. Moving away from the property may be an issue because, according to an underwriter, the VA requires primary residency for the property. (My understanding is that the VA only requires the property to be my primary residence for a year. I have been here three years.)
Am I in a no-man’s land where the tax gods can come and take money or is there some kind of special lamb’s blood I can paint over the four doors to get the IRS to pass by?