1031 Exchange Sale Price Percentage - Primary/Rental -> Rental

2 Replies

Good evening! 

Looking for some 1031 Exchange experts! :)

I have a primary residence that is deemed - 80% rental and 20% primary on my taxes. I am renting out majority of the house. 

I was chatting with a 1031 Exchange company and they said the sale price of the property being sold is the amount you have to exchange up to even if you have deemed part of it as a primary. 

Ex. 

1) Sells for 200k - exchange at least 200k in value 

OR

2) 80% of 200k - purchase at least 160k in value like kind to fulfill 1031 

An ideas on if 1 or 2 is correct?

Thanks! 

The answer is B.  This could be interpreted two different ways by your accountant.  But either way the answer is B.

1.  You could use the entire sales price of the property as your 1031 basis.  But you immediately take out the 40K as boot because that will be offset by your qualification for the primary residence exemption.  The boot which would normally be taxable is covered by the exemption.  But taking the boot then reduces your reinvestment target to $160K.  Your reinvestment target would be $160K.

2. Your accountant may be more comfortable bifurcating the sale of the property along the same lines as he has been reporting it on your tax filings.  In that instance 80% is allocated to investment and 20% to primary.  In that event again your reinvestment target in the 1031 is 80% of the $200K sale - or $160K.

Same result either way.