1031 my portion or total sales price

[Moshe S.]

In a 1031 exchange, does the replacement property need to be more valuable than the total sale price of the deal I sold (including other investors), or just my individual portion of the investment?

Here’s why I’m asking:

Say we sell a short-term rental (STR) for $700K, with $150K in equity we want to 1031. I'd like to put it into a large deal as a limited partner (LP). My concern is whether I'd then be locked into only larger deals in the future.

Example Scenario:

• - I sell a property for $700K, walking away with $150K.
• - I invest that $150K as an LP in a syndication deal.
• - The syndication sells later for $5M, and my share grows to $200K.
• - I want to 1031 exchange again.

Question:
Does my next deal have to be larger than $5M (the overall deal size) or just larger than my share of the equity in that deal - meaning, if 200k was 20% ownership then it has to be more than $1M (20% of sales price)? Because if I'm trapped going larger than $5M in the future, I'd probably look for something smaller that I can control now rather than always having to use it in a syndication

[Dave Foster]

@Moshe S., It might be even more complicated than you think.  In order to defer all tax you must purchase at least as much real estate as you sold.  If you and another person own a piece of real estate as tenants in common then you both own real estate.  Your real estate happens to be a % of the larger piece.  So when you do the 1031 you will need to purchase only as much as your part of the sale.

But where this is complicated is that purchasing a LP interest in a syndication does not qualify as buying real estate.  You must be buying actual real estate.  In an LP syndication you are buying a membership interest in an entity that owns real estate.  That will not work with 1031.  So your question is moot.

Now, if the syndication is willing to sell you a piece of the real estate as a tenant in common with the syndication then you can not only do the 1031 exchange into it.  But you will also be able to 1031 out of it.  And you will only be responsible to purchase at least as much as your part of the sale.