Is there a 1031 Maximum Number of Units?

Question

Perhaps @Dave Foster knows the answer to this:

Is there a maximum amount of 1031 replacement properties that could be used a like kind exchange?

For example, could I sell a 5 million dollar office building and go buy a 10 million dollar portfolio of 100 SFHs that are individually deeded?

Assuming same LLC as buyer/seller.

Dave Foster · Answer

@Will Gaston, This is a hard one to wrap your brain around.  The IRS doesn't care how much you actually purchase or how many units.  As long as you purchase at least as much as your net sale you will defer all tax.  You can actually purchase as much as you want.

But the IRS cares how you identify your potential properties.  And this is where your headache will start!

1. If you name three or fewer potential replacements the value of the list does not matter (just remembering that you have to purchase at least as much as your net sale).

2. But as soon as you want to name 4 or more replacements the total value of the list cannot exceed 200% of the value of what you sold.

Unless

3. You purchase 95% of the value of the list.

In your question specifically It looks like the $10 mil worth of SF homes would fall into the 200% rule so that should be fine.

But further, if that is truly a portfolio then you could think about naming the entire portfolio as one identification.  It's 100 homes but 1 purchase.  So only one identification.  The down side to this approach would be that the portfolio then becomes all or nothing.  Once it is named you can't eliminate properties from it.  You would have to purchase all.

Morals  of the story

1.If you're going to purchase a new property that is more expensive than you are selling limit your list to 3 or fewer

2. If you're wanting to purchase several smaller properties then try to have them under contract before your sale even closes so you can close on your purchases during the 45 day period.  That way when day 45 passes your list will be only the properties you have actually purchased which would allow you to meet the 95% exception

3. Make sure your QI will walk beside you cause the maze of the regs is not a well marked path!

David M. · Answer

@Will Gaston

Shouldn't be.  Either than doing it for an investment property, your next set of purchases just has to exceed your prior loan and principal balances otherwise there is "boot" to pay taxes on.  I'm sure Foster will chime in.

Will Gaston · Answer

Thank you @Dave Foster...you are a treasure to these forums!