1031 exchange from duplex to income producing personal residence

Realtor · Highland, IN · Member since 2015 · 47 posts · 29 votes

A family member recently passed away and they owned a home on 30 acres with a pole barn. My wife and I are interested in potentially buying the property and we currently own a duplex that we are thinking about selling. Is it possible to sell the duplex and 1031 it for the family property if we can prove that the pole barn was being rented out and producing income? We would be living in the property as our personal residence, so I’m guessing the answer is no, but I was just looking for a definitive answer. Any insight would be great, thanks!

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
7y
@Mark Plesha, It certainly is possible to sell an investment property and use the 1031 exchange to purchase a split use property. You will only be able to allocate the 1031 proceeds into the investment portion. But as long as the portion being use for investment is worth at least as much as the value of the property you sell (and you follow the 1031 requirements) you can do what you propose. You'll just need to work with your accountant to make those allocations.
A bigger issue you'll need to deal with is the related party aspect of the transaction. If your family member just passed away then the heirs are getting the property at a stepped up basis. Which means it is tax fee to them. If you attempt to purchase from them it could very easily be construed by the IRS as an attempt to access profit via basis shifting. the purchase from a related party in a 1031 is not specifically prohibited. But you'll again need to work with your accountant to be able to address the possible basis swapping consideration.
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Mark Plesha
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Realtor · Highland, IN · Member since 2015 · 47 posts · 29 votes
7y
@Dave Foster thank you for your reply, I will definitely be reaching out to our accountant and ask these questions. Appreciate your time, sir!
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