FHA loan to 1031 exchange ?

3 Replies

Good afternoon bigger pockets!

I currently have a SFR with an FHA loan.

What are the steps I need to make to turn make it eligible for a 1031 exchange?

Do I have to refinance? Get more equity? Solid credit score?

I tried finding answers on google but can’t find anything.

Anything helps thank you!!

Hi @Allan Pilapil

I'm not sure what you mean by "FHA loan to 1031 exchange?" The property will qualify for 1031 Exchange treatment as long as it has been held for rental, investment or business use. It does not matter what kind of debt you have on the property.

@Allan Pilapil  
If the house with the fha loan is your primary residence for at least 2 years (you can move out and rent it for up to 3 years) the gain is tax free (up to $250k, $500k married)irs section 121....no need to 1031.

You Can rent it out for at least a year, then 1031, but why....1031 simply defers the taxes, it doesn’t eliminate them. 

As @Bill Exeter mentioned, the type of loan makes no difference in either case v

@Allan Pilapil , So this is obviously a former primary residence that you converted into a rental right?  

First question to ask is will you have lived in it for 2 out of the 5 years immediately prior to resale.  It doesn't have to be your primary now as long as you have lived in it for at least those two years in the 5 prior to sale.  If so then you probably don't need a 1031.  You'll be eligible to get the first $250K of profit tax free ($500K if married).

But if you haven't lived in it for 2 out of the previous 5 years then it's current use is what qualifies it for a 1031 exchange.  The type of loan and the type of property it is do not matter.  If it is investment real estate that you have been using for productive investment use then it qualifies.

Credit score and such may play a role in you being able to purchase a replacement or replacements that are equal to or greater in value than your sale.  But the key question to ask is if you have significant appreciation or if you have significantly depreciated that asset.  In that case a 1031 would be a good idea for sure.

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