House Hacking to 1031 exchange?

[Zachary Miller]

Hey BP. I am new to the game and have been spending most of my time reading as much as possible here and have learned a ton. I am going to purchase a home soon and start house hacking. I am aware that with this, I will have to pay capital gains tax on the portion of the home that I rented out when I go to sell, while the portion of the home that served as my primary residence is excluded from that. 

I had a idea that I didn't see anywhere, so I wasn't sure if it was possible or not. Is it possible to house hack and, when I go to sell the property, use a 1031 exchange on the portion of the property that was rented while using the capital gains exclusion of the portion that was my primary residence?

[Bill Exeter]

Originally posted by @Zachary Miller:

I had a idea that I didn't see anywhere, so I wasn't sure if it was possible or not. Is it possible to house hack and, when I go to sell the property, use a 1031 exchange on the portion of the property that was rented while using the capital gains exclusion of the portion that was my primary residence?

Yes, you can do what we call a "split-use" 1031 Exchange.  The portion of the property used as your primary residence will qualify for tax-free treatment under Section 121 and the portion of your property used as a rental property will qualify for tax-deferred treatment under Section 1031.  In some cases, the tax-free treatment may cover the entire property if it is one unit with one common entrance.