1031 exchange tear down

6 Replies

Hello,
I have a very important question and would be incredibly thankful if you could offer me some expertise on the matter. I live in California and have a property I have dealt with the 1031 exchange. I sold my first property for 30,000 and used that as the down payment for my new property which I purchased for 181,000. This is a multi family income unit. My question is would I be able to tear down this rental property and build a condominium complex with all different APNs? Thank you very much. Please let me know what my options are.

Much obliged,
Omid

This might be a question for the County of LA to answer.  My guess is you could retain the different APN's as long as you don't add units to the property, i.e. 4 for 4.  Another question might be, what is your goal here?  Capital appreciation, or cashflow?  If the property is cashflowing now, how quickly would the construction costs be "paid back" by proceeds from the new units rather than the current conditions.

Thank you very much for the reply

A 1031 exchange must be for a "like kind" property - so if you're going to change the type or use of the property you may have an issue.  You really need to speak with a qualified expert in 1031 exchanges in regards to the status of the benefits of your 1031.  An attorney or CPA would be your best bet.  

Thank you very much I appreciate that

Originally posted by @Blair Poelman :

A 1031 exchange must be for a "like kind" property - so if you're going to change the type or use of the property you may have an issue.  You really need to speak with a qualified expert in 1031 exchanges in regards to the status of the benefits of your 1031.  An attorney or CPA would be your best bet.  

Hi Blair,

I wanted to jump in here. The term like-kind does not mean condo for condo or SFR for SFR, it simply means real estate for real estate. The real important issue is whether the properties are held for rental, investment of business use. So, if he completed a 1031 Exchange and then scraped the land and built condos with different APNs the 1031 Exchange would be fine as long as he had the intent to hold the condos for rental or investment purposes (as opposed to build and then sale or held for sale).

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