1031 Exchange Question - Single Family Home

6 Replies

Greetings Bigger Pockets friends...

I purchased my Los Angeles single family home in 2012 as an investment as the market was at a low and figured it was now or never to jump into the market. I have been living in the home since I purchase it as my sole residence.  The home has appreciated quite a bit and I I am now thinking about selling it.  

I was hoping to maybe put the money in a 1031 Exchange so that I can buy a triplex or quad.  But I am reading that I cannot do that with a home I have been living in.

Is there anyway around this?   Do I have to make it a rental property for a year or something first to be able to do this?

Any advice is greatly appreciated.

Thank you.


STEPHEN

Get married and you're exempt up to 500k in capital gains since it's your primary residence (not investment property). If you aren't married it's 250k.

Look up section IRS section 121.

This better and easier than a 1031, however 1031 is for a investment property (that you don't live in as primary residence) because section 121 doesn't apply there.

@Stephen Marlin  

How much gain are you looking at if you sell? 

As mentioned selling a primary is even better tax wise due to section 121 as it isn't allowing you to Defer tax as with a 1031...it's letting you totally eliminate the tax! 

There are a few creative options we can look into if your gain is over the $250/$500 threshold. 

@Stephen Marlin , marry in haste - repent at your leisure.  Even if it's worth $250K :)

If you can be patient and turn that property into a rental for a year then you could sell it and take $250K of gain tax free since you've lived in it for 2 out of the 5 years prior to sale.  And you could 1031 the remainder.  So the entire gain is a combination of tax free and tax deferred.  That's like the holy grail of investing right there.

Or you could get married.

Hi Stephen Marlin, 

Just thinking outside the box, you can always take equity out, and use it for the purchase of either duplex, triplex, etc. 

And then later do, as the above mentioned a 1031 exchange, if you wish.  

Anyhow, if you ever need anything, I'm in Los Angeles. 

Hope this helps!

Sincerely,

Rudy Vazquez

Haha!!  Yes, I agree with you about marrying in haste.  I am still figuring out what I want to do with my house.  Love the appreciation, but kind of tired of the neighborhood.  I suppose I could rent it for a year.  Tax Free and Tax deferred sounds very enticing.