1031 Exchange and VA Loans... Any thoughts?

8 Replies

I am relatively new to the BP community, however, my wife and I have been listening to podcasts for a few months now. We purchased our first home in January utilizing the VA loan. I want to start a discussion with those who have some experience with VA loans and if anyone has used the 1031 exchange with a property that was purchased with said loan. We are leaning towards moving into house hacking with a triplex or quad. Does anyone have experience in a 1031 exchange with a VA loan?

How did it go?

What were some of the hurdles you had to get over?

Were the property specifications any different? 

I am attempting to find out options as we want to try and avoid paying capital gains tax on this property and still be able to get a positive cash flowing rental property. 

Any advice or experiences are greatly appreciated! 

Thanks in advance,

Ryan 

I don't have information regarding the VA loan.

But just know that if you move into a duplex/triplex and house hack only the rental portion will qualify for a 1031. 

The primary home portion will qualify for a primary residence 121 exclusion though and you can combine the two. 

@Ryan Jones , The VA does allow you to go up to 4 units for a loan. So like @Natalie Kolodij said, the portion that you live in will be tax free when you sell.  The rest of the property will be in your 1031 exchange.   We've worked with many clients who moved or were redeployed and kept their property as a rental and later 1031d it.  

I''m tagging @Johnny Quilenderino here.  He did a masterful job of using his service time to build an incredible portfolio and then move it to his final home all using 1031 exchanges.

@Ryan Jones , more a mortgage question but a refi doesn't change the nature of the property. FHA also allows you to purchase up to 4 units as long as you live in one. So you could use your VA and then refi with a FHA I spose. The IRS does not care what financing you have as far as the 1031 is concerned. It is the use of the property that qualifies it for 1031. So no matter what financing you have, if you live in 25% and rent out 75% you can take 25% of the gain tax free and 1031 the rest.

@Dave Foster great to hear from you! Yes, that 1031 was an easy one on the books. Might look into another one a little bit later!

@Ryan Jones As for the 1031, something that I was not aware of but you should be "like-in kind" also means who is on the deed! In my situation, my wife was the only one on the deed, so when we did the tax exchange, we had to form a company for her, and she was the sole-owner of the LLC and property. As for the mortgage paperwork anyone can be on that, but the IRS will come after whomever is on the deed for the taxes. Before you do one, consult a lawyer, what I explained above saved me 120k in capital gains taxes.

Cheers,
Johnny

@Ryan Jonesundefined

@Johnny Quilenderino that is good to know! We were looking at doing 2-3 properties per LLC to keep them out of our direct names and limit major potential loss in a worst case scenario.

What would you say is an appropriate consultation amount for something like setting up an LLC?

Thanks in advance,

Ryan 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here