Up Exchanging Questions

[Bryan Pham]

Hi BP,

Is it possible to up exchange your primary 4 plex into a commercial property? Has anyone does this before? 

[Dave Foster]

@Bryan Pham, yes that is perfectly fine.  When doing a 1031 exchange it is the use not type of real estate that is critical.  Any type of real estate used for productive investment purposes can be exchanged for any other kind of investment real estate.  So the move from residential to commercial is absolutely fine.

If this 4 plex is something that you live in 1/4th and rent out 3/4ths then you have a mixed use property and can potentially benefit in two different ways.   The portion you live in would be considered your primary residence and if you have lived in it for 2 out of the 5 years prior to selling it you will be able to take the first $250K ($500K if married) of profit tax free from the portion allocated to your primary residence.

The other 3/4ths would be considered investment property and could be exchanged tax deferred for commercial property.

So at the end of the day you could conceivably sell that property.  put tax free cash into your pocket and tax defer the remaining profit into the next investment property you want to own.