1031 exchange an owner occupied investment?

Question

Can you 1031 exchange an owner occupied investment that is FHA financed?

Dave Foster · Answer

Not to go tax free.  You're plan is a good one.  If it's too slow for you, you could look at tapping equity and buying your next rental more quickly.  Then get on the 1031 wagon.  You could also do that and then down the road a bit convert it into your next primary.  But, the tax free portion will be prorated between the time you used it as rental and as primary.  You may have some calculations to do.  Sometimes slower is more lucrative.

Dave Foster · Answer

@Jacob Casarez, you can. If you've allocated a certain % as investment and if you have separated it and depreciated it and reported the income. Like a bed and breakfast. It is the same as owning a duplex and living in one side and renting the other.  You can 1031 the rental side and take the primary res exemption on the other side.   The difference is that the documentation requirements needed, if challenged to prove qualified use, is trickier to produce  and more open to disallowance when you're documenting a room in a house rather than one side of a duplex.  Many have experienced this same angst when declaring a home office for tax purposes.

Jack B. · Answer

Yes, there is a quicker way. Cash out refinance the money. Then eventually rent it out, keep collecting properties.

Ricky B. · Answer

Started a new thread

Jacob Casarez · Answer

Awesome input, thanks for your help @Dave Foster! :)

Jacob Casarez · Answer

Yes @Dave Foster, I am aware of taking advantage of the exemption once every 2 years -- as I mentioned above that is what I am in the process of doing. I was just wondering if there was a quicker way to house-hack personal resident rental deals instead of using up 2 years of my life each time?

Dave Foster · Answer

Yep, unless it's greater than the $250K/$500K limit.  Then there would be an advantage in being able to have "spun off" a portion as investment and combine the two.

Such a problem to have :)

@Jacob Casarez, you do know that you can also take advantage of the exemption once every two years right?

Wayne Brooks · Answer

@Jacob Casarez I think you're missing the important part.  On your primary residence, there is no Taxable gain to roll over......it's tax free, so no need to "roll it over".

Jacob Casarez · Answer

Thanks guys, I am just trying to map out another strategy for the next owner occupied deal. I am in the process of that 2 year plan @Dave Foster, just 6 months left to go! So we are certain that there is no way to rollover gain on personal residence say if you rented out rooms in the Owner occupied property, right?

Dave Foster · Answer

@Jacob Casarez, It's not the financing that is the issue.  It is the fact that your primary residence does not qualify for 1031.  1031 exchanges are only for investment property.

But the rules are actually in your favor on your primary residence.  If you have lived in it for 2 out of the last 5 years you may sell your primary residence and take the first $250K ($500K if you are married) in profit tax free.  No need to reinvest.  No tax.

1031 exchange an owner occupied investment?

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