1031 Exchange a Rental into a 2nd Home?

[Garrett Hollenbach]

Hello BP, 

I want to 1031 exchange a Long Term Rental Property into a Beach Condo. I want to buy the Beach Condo as a 2nd Home so I can get a lower down payment. Can I 1031 Exchange a Rental into a 2nd Home? 

Reason for Question: 

I have enough equity (without paying cap gain tax) in my rental for a 10% downpayment on a specific beach condo I want, but I don't have enough equity for a 20-25% downpayment on that same specific beach condo I want. If I simply sell my rental and pay cap gains tax, I will not have enough cash for a 10% downpayment on that beach condo I want. Hence my question above. 

Thanks 

[Dave Foster]

@Garrett Hollenbach as long as you treat that condo as an investment.  It can be a proper 1031.  Some personal use is allowed.  And the requirements for a 2nd home loan are usually that the new property be at least 100 miles from where you live.  And you agree to use it for personal use at least two weeks a year.  This does not contradict investment use at all.  In fact it meets the safe harbor guarantee from the IRS in Rev proc 2008-16.

Great idea!

[Chris Picciurro]

Yes you can do that. Obviously there are self-dealing rules to follow that @Dave Foster mentioned. 

[Carlos Ptriawan]

Quote from @Garrett Hollenbach:

Hello BP, 

I want to 1031 exchange a Long Term Rental Property into a Beach Condo. I want to buy the Beach Condo as a 2nd Home so I can get a lower down payment. Can I 1031 Exchange a Rental into a 2nd Home? 

Reason for Question: 

I have enough equity (without paying cap gain tax) in my rental for a 10% downpayment on a specific beach condo I want, but I don't have enough equity for a 20-25% downpayment on that same specific beach condo I want. If I simply sell my rental and pay cap gains tax, I will not have enough cash for a 10% downpayment on that beach condo I want. Hence my question above. 

Thanks 

 As far as I know, everyone is doing this for 1031 cycles when we near retire.