1031 exchange for a purchase of a Mobile Home Park

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1031 exchange for a purchase of a Mobile Home Park

Mark B.
Duarte, CA · Member since 2018 · 6 posts · 0 votes

I am selling a SFR Rental that I have had for 10years. Bought it for 200K, can sell it for 250K. I am buying a Mobile Home Park For 155K. I would like to transfer the SFR into a LLC before I sell it. Then when I buy the MHP for 155K, bank the balance in the LLC bank account and use the balance over 2years to improve the MHP. Can I do these $$ amounts for a 1031 exchange?

Thanks

Mark B.

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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
8y
Originally posted by @Mark B.:

I am selling a SFR Rental that I have had for 10years. Bought it for 200K, can sell it for 250K. I am buying a Mobile Home Park For 155K. I would like to transfer the SFR into a LLC before I sell it. Then when I buy the MHP for 155K, bank the balance in the LLC bank account and use the balance over 2years to improve the MHP. Can I do these $$ amounts for a 1031 exchange?

Thanks

Mark B.

 Hey Mark, 

Since you're selling for something LESS expensive you're going to pickup boot. That income is going to be taxable whether you later user it to improve the MHP or not. 

The LLC has no impact on this.

@Dave Foster can confirm. 

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  • Ryan Groene
    Specialist · Cleveland, OH · Member since 2016 · 186 posts · 173 votes
    8y

    your best bet is check with a lawyer or a company that specializes in that...honestly im not sure if its a like or kind assets since your going from residential to commercial

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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    8y
    Originally posted by @Mark B.:

    I am selling a SFR Rental that I have had for 10years. Bought it for 200K, can sell it for 250K. I am buying a Mobile Home Park For 155K. I would like to transfer the SFR into a LLC before I sell it. Then when I buy the MHP for 155K, bank the balance in the LLC bank account and use the balance over 2years to improve the MHP. Can I do these $$ amounts for a 1031 exchange?

    Thanks

    Mark B.

     Hey Mark, 

    Since you're selling for something LESS expensive you're going to pickup boot. That income is going to be taxable whether you later user it to improve the MHP or not. 

    The LLC has no impact on this.

    @Dave Foster can confirm. 

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
    WebsiteView Page
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  • Jon Dorsey
    Rental Property Investor · Millersville, MD · Member since 2017 · 127 posts · 44 votes
    8y

    @Mark B. If you still have a mortgage, that gains will be the difference b/n $250k, paying off the mortgage, and any other seller fees . Consult your CPA about the IRS requirements for identifying the property and transitioning the gains into the new property.

    If you truly have $250k to work with, see if you can have the seller make the improvements, bring in homes, etc. beforehand and buy it at higher price. Doubt the seller would, but just a thought. Best of luck.

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Mark B., couple of issues facing you.  First the irs frowns on a change of entity immediately prior to a sale and 1031.  Like @Natalie Kolodij said. 

    Second the reinvestment rules will catch ya.  In order to defer all tax you must purchase at least as much as you sell. If you purchase less than you sell the irs says that the difference is profit first.   So selling for 250 and buying for 155 would not give any tax savings.

    Couple of options- do a reverse improvement exchange and put the improvements in during the exchange period.  

    Or buy Two replacement properties.  Buy the park for $155 and buy something else for the remaining $55k.

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  • Mark B.
    OP
    Duarte, CA · Member since 2018 · 6 posts · 0 votes
    8y

    Or buy Two replacement properties. Buy the park for $155 and buy something else for the remaining $55k.

    You mean $155 and $95 or $100? Can the second property replacement be personal property such as multiple mobile homes? In this case the mobile homes would be located on the First replacement property.

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