Transitioning a 1031 to Primary Residence

[Tracey Lane]

Looking for some input from the BP community.

We're thinking of selling a triplex in Venice, CA soon. The property is owned 50/50 between my husband and me and my parents. For various reasons we have decided to sell and part ways in this investment.

One idea we have is to 1031 our half of the proceeds and purchase a SFR in Ventura, CA. We would rent it out as an investment property for 3-4 years then move into it. Our primary here in LA would then be rented and become our investment property.

Based on the research we've done on house prices and rents in Ventura, we most likely will be able to accomplish a small cash flow situation, however, the main goal is to lay the foundation for us to be able to move out of the city and not lose the gains we've achieved in our Venice property.

My main question has to do with how, and if, the 1031 deferred taxes owed get transitioned when the investment becomes our primary. We have made a great gain on the Venice property so paying the taxes upfront would be a pretty big hit. 

Triplex bought for: $1.1 mil

Hoping to sell for: $1.8 mil

Current mortgage: $655,000 (recently refied)

Many thanks!

[Tracey Lane]

@Dave Foster Thank you for the excellent input and also for some new things to think about. Appreciate it so much!