I have a home that I rent to my daughter. They just started paying rent in January, but have been living in the home for 4 years. Can I 1031 exchange into a New home construction on land they own? Is it worth it if I only will be making less than $100k on the house (guessing $60k).
How many years on tax return you have claimed that rental? Suggest you call your CPA....
None, I have held the home as an investment primarily vs a rental.
@Natalie Anderson , Assuming that you and your accountant feel good with your intent being investment there's quite a few things that could raise flags.
You want to sell use the 1031 to buy new construction. That's no biggie. But the lot you want to build on is on their land. So you have to buy that lot from them which means that you now have a related party transaction and a probable disallowance there. Let alone that fact that you'd also get to explain that you were disposing of an investment property that had a tenant who just happened to be the owner of the land you were buying as part of your new build.
My guess is that the same tenant would be living in the new construction house as your tenant on the same lot they had just sold you??
Looks pretty dark grey when you factor all that in doesn't it?
If you want to do new construction. Go buy a different lot and build it and by the time it will be done your daughter will have paid your rent for a year that you've declared on your taxes. Then you can 1031 and buy the new house for your tenant. That has much better substance and optics.