1031 Exchange Primary 2+ yrs/Rental -> Rental Investment - Cash ?

2 Replies

Good evening!

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

Cash Question:

Can I pull 20% out and be non-taxed (held for 2+ years) and roll the rest (80%) by 1031 exchange into rental properties as tax deferred?

Ex. 50k equity & appreciation upon sale, 40k would go to 1031 like-kind exchange & 10k would be covered under home sale exclusion on capital gains tax.

Thanks for any advice! :)

Yes and I think there are a couple ways of presenting this but here is how I would do it.

You would 1031 the whole thing and take boot equal to your gain on the primary residence portion up to the statutory maximum ($250k for single and $500k for married) with what's left going through the 1031 exchange.

Boot is normally taxed but due to the 121 exclusion it will not be in this case.

The amount you have to invest in replacement property to avoid taxable boot (on the non-primary piece) would be 80% of your sales price.