Buy current primary residence with 1031 - then refi?

Question

Hi there,

I am selling a rental property (H1) and would like to avoid paying capital gains. I would like to refinance my current primary residence (H2) using the profit and turn it into my next rental property. Then, I want to pull out equity from H2 to purchase my new home (H3.)

Can I:

• Move income from sale of H1 to 1031
• Refi H2 using that money to pay down loan amount.
• Take equity out of H2
• Use that money as a downpayment for a new primary residence H3

Now that I type it out it seems like some hoopla the IRS would not allow - but my brain won't rest until I ask the question.

Bill B. · Answer

2 x Nopes.

Can’t 1031 in to a primary residence.

Can’t use a 1031 for a refi, only purchases.

A “creative person”, someone who didn’t post this idea on a public website, might suggest you could do a 1031 exchange in to a property (h3) that might someday, say more than a year later, become your new primary after it was a rental.

Dave Foster · Answer

Heck @Bill Brandt I'd post it! No reason to keep it on the DL :) . It's a great strategy and even blessed by the IRS with a safe harbor. While @Gwen St. Pierre cannot sell her investment property and use the 1031 to buy a primary residence she could buy an investment property and then in a year or two convert it into her primary residence. The safe harbor is found in Rev Proc 2008-16. It is a safe harbor if you've used the property for investment for 2 years.

But Gwen, wondering why you don't do that and then in the interim sell your current property once you've lived in it for 2 out of the 5 years immediately prior to sale. Then you would get the first $250K of profit tax free ($500K if married). You can spend that however you want including travel or whatever while you wait to move into your investment property that is just too nice to be a good investment property.

Rob Massopust · Answer

You have to separate the refi from the 1031

You can buy SFR from exchange proceeds, but you might have to buy as investor. it is supposed to be an investment property but as long as you hold long enough you can switch back and forth from owner to investment

Buy current primary residence with 1031 - then refi?

Buy current primary residence with 1031 - then refi?

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