1031 exchange from 2 properties into 1

[David Song]

Planning to sell two investment properties in CA and buy one primary residence in CA.

Property 1 is listed and expected to sell in August to September timeframe (Around 150K long term profit, total sale price around 0.85M, no loan)

Property 2 is under renovation and expected to be listed in August-September, and close around October to November (around 400K long term profit, total sale price around 1.7 M, around 0.6M loan. ~1.1 M in cash).

What is the best time to buy the replacement property? Under 45 days, I need to identify replacement property. Does that mean I need to be under contract for the replacement property? Or just put an offer into it? What if the offer is not accepted?

The replacement property value should be 0.85+1.7=2.55M or above? Can I still get a loan for this property? If so, do I have to put all the cash (i.e. 0.85 + 1.1 = 1.95M) from the two escrows into this replacement property?

Also, what if Property 2 is sold after Day 45, when the replacement property is already identified for Property 1?

Any experienced 1031 exchanger can provide some insight into this scenario? Greatly appreciated.

[Dave Foster]

@David Song, LIke @Bill B. said, you can't 1031 directly into a new primary residence.  But you could 1031 into a nice investment property and then a couple years later convert that into your primary residence.  There are provisions in the code that allow that.

The key to a consolidation exchange is that you want to cluster the sales as close together as possible.  This is because the timing has to work so that the replacement property is listed on each 45 day list.  And you have to close on the replacement property within 180 days of the date of the first sale (the first 1031 exchange that will expire).

My recommendation is that when you get an offer for that first sale, negotiate as extended a closing as you can.  This will give you more time to get the second property ready and on the market.

The reinvestment requirements you'll also need to pay attention to.  It looks like your replacement property will need to be around $2.55 (the aggregate of the two sales).  And yes, you do have to put all 1.95 of cash into the new purchase or purchases unless you want to pay tax on what you don't use.