1031 Exchange & Taxes

New to Real Estate · OR · Member since 2025 · 67 posts · 24 votes

Hello all,

Since my husband and I are house hacking. I’ve been told that we can only do a 1031 exchange for part of the proceeds, because it’s our primary residence.

Also, from the proceeds how much should I told back for taxes and depreciation recuperation? I am thinking it might be okay, if we sell our current duplex and buy a more expensive one. Thanks! Samantha

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

2mo

@Samantha Chacon-Johnson, That's correct. On your tax return, you own two units that are taxed differently. One is the primary residence. If you lived in that as your primary residence, then you can sell and take that % of the sale (64%) of the gain tax-free (up to the $500K limit).

But you can also do a 1031 exchange on the other unit. And defer all the gain and depreciation recapture from that portion.

The best of all worlds is available to you - some tax-free, some tax-deferred - NO tax on the transaction.

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
2mo
@Samantha Chacon-Johnson this question should ABSOLUTELY be for a tax professional and/or 1031 administrator. Now, there is a tax forum and a 1031 forum specifically too on Bigger Pockets, so maybe just post in both of those but your "exemption" of long term capital gain (meaning, holding an asset for 12 months) is $500,000 if married, filing jointly, occupy and own for 24 months. However, since your property is a duplex, even the little nuance of if the property is platted separately might come into play here. So, please reach out to a 1031 administrator for specifics here. Super important.
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- Samantha Chacon-Johnson
  OP
  New to Real Estate · OR · Member since 2025 · 67 posts · 24 votes
  2mo
  @Andrew Postell we cannot do a 1031 exchange because it's our primary residence. There is a slight chance we could do it on the rental side, however the total percentage of it would be 36% (our plot of land is bigger and thus it is not 50/50). I've already dismissed it as an option due to the time constraints and it's our primary residence, and fees associated with it.
  
  However, we still have to pay capital gains on the rental side and depreciation recuperation. And I am wondering if I need to plan for it and hold back some of the proceeds from the sale of our house to cover it? Or if the purchasing another duplex for more will offset this?
  
  Yes, I agree this question is intended for a tax professional.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
2mo
@Samantha Chacon-Johnson, That's correct. On your tax return, you own two units that are taxed differently. One is the primary residence. If you lived in that as your primary residence, then you can sell and take that % of the sale (64%) of the gain tax-free (up to the $500K limit).

But you can also do a 1031 exchange on the other unit. And defer all the gain and depreciation recapture from that portion.

The best of all worlds is available to you - some tax-free, some tax-deferred - NO tax on the transaction.
The 1031 Investor5137 Reviews
Website View Page
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- Samantha Chacon-Johnson
  OP
  New to Real Estate · OR · Member since 2025 · 67 posts · 24 votes
  2mo
  @Dave Foster that's great! I was not sure about the depreciation recapture. That's sold advice!
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Joaquim ResendeBusiness Member
Member since 2026 · 11 posts · 2 votes
2mo
Hi Samantha,

The answer depends on how you've used the property.

If the duplex has been both your primary residence and a rental (a typical house hack), the sale may involve a combination of the primary residence exclusion and gain attributable to the rental portion. A 1031 exchange generally applies only to property held for investment or business use, not the portion used as your personal residence.

As for taxes, there's no one-size-fits-all percentage to set aside. It depends on factors such as your adjusted basis, depreciation claimed, how long you've owned the property, your income, and whether you're eligible for the home sale exclusion. Any depreciation claimed on the rental portion is generally not eliminated by the home sale exclusion.

If you're planning to roll into a more expensive property, it's worth modeling the numbers before you list the duplex. A little planning upfront can make a significant difference in the tax outcome.

Best of luck with your next purchase!
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Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
1mo
I would be looking to get a tax estimate of how much you'd owe if you sold your duplex and did not a 1031 exchange before doing anything.

From there, you can decide on a 1031 exchange or you could do a 1031 exchange lite where you sell a property and buy a new property and place in service in the same tax year. To accelerate losses if needed, you could do a cost seg on the new property to offset the gains you had.
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Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 900 votes
1mo
The cleanest first step is to get an actual tax estimate of what you'd owe if you sold the duplex and did nothing special, because that number tells you exactly how much to hold back from the proceeds instead of guessing. Once you know that figure, buying a more expensive duplex doesn't automatically wipe out the tax on its own, but there's a version of this that can get you there: sell, buy the replacement, and place it in service in the same tax year, then run a cost segregation study on the new property to pull depreciation forward and offset the gain you're recognizing on the rental side. That combination is usually what actually moves the needle, not just trading up in price. How it shakes out depends on your basis, the depreciation you've already taken, your income, and your timing, so I'd model it with your own CPA before you list so there are no surprises.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
1mo
Samantha, what you were told is generally right, but I’d phrase it a little differently: assuming the duplex has separate units, the portion you lived in and the portion you rented are usually treated separately for this purpose.

The gain tied to your personal unit may qualify for the Section 121 home-sale exclusion if you meet the ownership and use requirements. The rental portion may qualify for a 1031 exchange, allowing you to defer the gain and depreciation-related tax by reinvesting it into another qualifying investment property. Section 121 is applied first, followed by Section 1031.

I wouldn’t use a general percentage to decide how much to hold back. Your actual tax depends on the original purchase price, improvements, depreciation claimed or claimable, selling costs, how the property was divided between personal and rental use, and how much of the rental proceeds you exchange. If the rental portion is properly exchanged, the depreciation-related gain may also be deferred rather than paid immediately.

Have a CPA run a sale projection before listing, and involve a qualified intermediary before closing. Once you receive the sale proceeds yourself, it is generally too late to set up the exchange.

Happy to connect!
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