1031 : potential primary residence

3 Replies

Question on 1031 exchange. I am a buy and hold investor, have never done 1031 before, so any help is appreciated. I bought this house for primary living: $1m on a traditional feddie/fannie loan, plan was to live in the house myself. But I am getting $1.5m for this house. Can I sell it and do 1031 exchange, since the initial loan is with traditional primary residence financing, will there be any impact?

If I do 1031, do I have to buy the new property worth $1.5m or higher

or 

i have to use the profit: $500k in the new investment property.

Hi @Dhiraj Chhabra

The sale of a primary residence or a property acquired with the intent to use as a primary residence will not qualify for 1031 Exchange treatment.  Properties must be held for rental, investment or business use to qualify for 1031 Exchange treatment.  The issue boils down to your intent.  You would need to provide under audit that you had the intent to hold the property for rental, investment or business use.  

The answer to your other questions is you must acquire one or more replacement properties that are equal or greater in value than what you sold.  The amount required to be reinvested would be $1.5 million less certain routine selling expenses.  

Originally posted by @Dhiraj Chhabra :

Question on 1031 exchange. I am a buy and hold investor, have never done 1031 before, so any help is appreciated. I bought this house for primary living: $1m on a traditional feddie/fannie loan, plan was to live in the house myself. But I am getting $1.5m for this house. Can I sell it and do 1031 exchange, since the initial loan is with traditional primary residence financing, will there be any impact?

If I do 1031, do I have to buy the new property worth $1.5m or higher

or 

i have to use the profit: $500k in the new investment property.

I would keep it and rent it out for a year or two then 1031 exchange. You could also cash out refinance or get a HELOC on the property to use as other investment purchases.