I'd like to sell my rental home and buy the largest MF I can afford (likely 6-10 units.) If possible I'd like to move into one of the units as I'm currently paying rent. I'm estimating sale proceeds of 380k and my home is 121 eligible, so 130k needs to be protected by 1031. What would be the tax implications of moving into that 8plex that I buy if I spend 300k on the down and pocket 80k as reserves? Would I be splitting off the unit for tax purposes, would it totally disqualify my 1031? If I wait for some period of time can I move in later?
Section 121, assuming you are eligible, protects $250k of capital gains, not proceeds. You most likely do not have $250k of capital gains, and accordingly no tax issue to worry about.
To be eligible for Sec 121, your rental home has to be your former residence which you left less than 3 years ago.
@Michael Plaks thanks for your response. I started renting out the home about 15 months ago so I should meet those requirements for 121. Just to clarify 380k would be my profit from the sale after paying the mortgage and comission. I'm estimating my cost basis around 250k and sale price at 620k, with 200k left to pay on the mortgage.
@Corbin Lane , If you just moved out of that house 15 months ago you really don't need a 1031. All of the gain will be tax free (you get the first 250K of Profit tax free). All you would defer in the 1031 would be depreciation recapture of 15 months. So if I'm understanding correctly you don't need the 1031. Sell the house. Take the gain tax free. Buy the multi and use it however you want.
Your cost basis should be pretty easy to figure out. It has nothing to do with how much is on the mortgage, but what you bought the asset for + any improvement cost. If you bought it for $250k and sold it for $620K with no improvements, my understanding is your profit would be $370K. $250 would be exempt (if you are single. I think Married filing jointly it would be $500K) so you would have cap gains on $120K