1031 exchange from SFR's to purchase farm over 10 acres in NC

Realtor · Jamestown, NC · Member since 2017 · 6 posts · 1 vote

Hello BP friends! Looking for some advise/ clarification for a 1031 exchange. I have 2 properties in NC which I am considering selling. However, they will sell about 2 months apart due to current lease agreements. I would like to use those funds to purchase a 10+ acre farm / land in N.C.

My question is: Can I convert the 2 properties to purchase a 10+ acre farm or land, have the farm as my primary residence and still qualify for a 1031 exchange? This farm/ land would be a working farm and not just as a homestead. Would the farm be considered "like property?" Feel free to expand on your answers and add any suggestions.

Also, what avenues are there to "park" my funds "short-term" before I identify a property to buy?

Any advise would be greatly appreciated! Thank you!

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Wayne Brooks

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

@Dave Foster can clarify...

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
4y
@Dave Foster can clarify...
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De Rasche
Real Estate Agent · Near Memphis, Tenn. · Member since 2019 · 88 posts · 34 votes
4y
Ask an expert on here or one referred that can expound as I have only been involved in a few of these.
You used to be able to do a reverse 1031 to solve the issue for a CONTRACT on the target property, but will have to align the closings to fit all the 1031 windows for the target INVESTMENT property CLOSING. The fee for a reverse 1031 is extra.
Used to be able to merge more than one sale into one investment or one sale for more than one target purchases.
Under previous admin. there was proposed a way to "try" and lease INVESTMENT property for a year or so and if not able to make it as a n investment, then convert to a PRIVATE residence, but key word is previous.
Hoping someone in the current know clarifies this for you and me.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
4y
@Scott Simpson, Your plan is very doable! Here's some keys. But know that your 1031s have to start with the closing of the sale. So parking outside a 1031 is not an option if you want to avoid tax.

1. Each your properties will probably end up being a separate 1031 exchange with their own timelines. You have 45 days after the date of sale to identify your new property and 180 days to close on it. So it is very possible to sell your first property, identify and go into contract on your farm. Then complete the sale of your 2nd property and sell it before you have to take title to the farm. As long as you cant identify on both 45 day lists and close on the new property after the sales of the old properties but no more than 180 days after the sale of the first property (the first exchange that expires) you'll be fine.

2. Generally the farm will be divided into primary residence and investment working land and buildings. I say generally because there is a sound argument. out there that a house on a farm can be included as part of the investment property since the farmer or farm hands have to be on site (just like a self storage apt, or a managers unit in an apt building). But that is up to your accountant.

What's far easier is that if the value of the investment portion of the farm is at least as much as the aggregate of your two sales then your 1031 would be absorbed by the investment portion. And you could immediately move in to the main house.

Or if your accountant didn't like either of those options you could 1031 into the entire property. And not move in for a year or so as @De Rasche suggested. And then later convert the house into your primary residence without a taxable event.
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