Guidance Regarding 1031 Exchange
All- Thank you in advance for your wisdom on this topic. After much research, I am looking for some guidance on a specific 1031 that I would like to do.
I currently own several investment properties in as a tenancy in common with my sister. We are looking to sell one of the properties. We have had it rented in the past to third parties and more recently to my son. We should have about a $150k deferred gain. We are looking at doing the following and would like any insight that the forum may have.
- Sell the current property, for which my son is renting, and buy a new property. The current property is unencumbered and would have a sales price of roughly $250k with a basis of $100k.
- Buy a new property for which myself and my sister would retain our ownership and transfer 100% of the proceeds per the guidelines. Additionally, as the new property will be on the $450-500k range, we are looking to add my son as a third tenant in common who would use that as a primary residence.
- My goal is capital appreciation for my percentage of ownership.
- At some point after the 1031 exchange, I’d like to do a cash out refinance of approximately $100k in equity to either purchase another property or to fix up a guest house located on my primary residence to be used for rentals. A small portion of this may be used for renovations on the newly purchased property from the 1031.
Based on my preliminary research, it seems that this should work. It seems the timing of the refi would be more critical to not be considered boot. Any thoughts as to whether this would be allowable or other issues? The holding period in the current property has been about 8 years so that demonstrates the ability to hold the property as an investment.
I’d assume that we would need to enter into a shared equity financing arrangement whereby I will provide the initial capital contribution via my 1031 exchange and my son will assume all financing and operating costs in an ownership percentage based on the overall consideration given. Is there anything else that I should be considering?