@Alexander Titus as long as the property in which you exchanging is greater value I think this may be allowed. Confirm with a CPA who is well versed in these types of transactions since the IR has a lot of fine print on whats allowed and the time frame that you have to select a property.
Alex Deacon, Real Estate Agent
@Alexander Titus it all depends on the valuations. When you do a 1031 exchange you are selling investment real estate and one of the requirements is that you replace that with at least the same amount of new investment real estate. A MF property that you intend to reside in is really more than one piece of property. There is the component that is your primary residence (not eligible for 1031) and the investment portion (eligible for 1031).
Example - You are selling a @200k SF rental. You can buy a replacement property with your 1031 exchange and defer all tax as long as the investment portion was worth at least as much as you sell. So a duplex for $400K would be fine.
And this can be a huge strategic move as you now have one property that is doing two things - It is building up tax free cash from the residence portion. And the investment side has deferred your tax on the investment you sold while it continues depreciation benefit and is throwing off NOI. So when you sell you'll get to take some money tax free and you can do another 1031 on the investment side and defer that tax.
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