1031 Exchange Equivalent from investment properties into primary residence

[Kim Tran]

Hi everyone,

I am a new member of BiggerPockets and am eager to learn from everyone! My husband and I own a rental property and a primary residence. We are looking to buy a bigger primary residence to start a family. We would like to turn our current primary residence into a rental investment and 1031 exchange for our current rental property to help with buying a new primary residence. 

From our understanding, the 1031 exchange only works to exchange from 1 investment property into another. Is there an equivalent where we can sell our investment property to purchase a primary residence and defer the capital gains tax? 

Thank you so much! Appreciate all your help!

[Jackson Hanssen]

No. To take advantage you have to sell an investment or business property and buy an investment or business property.

In theory you can 1031 your old rental property into a newer and nicer investment property that you eventually make into your personal residence. However, that would take a year or two in order to not be voided as exchanging investment real property for personal property. 

Depending on the built in gain and how long you've lived there, you should be able to sell your current primary tax-free and roll any gains from that into your new primary residence, that is IRC section 121.