Sell A House, Buy A Hangar

[Arnie Guida]

I seem to remember 1031 rules requiring that the properties be "like kind" and that the new property be of more value, correct? I ask because I'd like to buy an airplane hangar to rent out and sell a single family residential house to fund the purchase. The hangar will be of less value than the house. Could this be done within 1031 rules? Thank you, Arnie

[Dave Foster]

@Arnie Guida, if the hangar is on a deeded parcel then absolutely it is "like kind".  Like kind is defined by use not type.  But it must be investment real estate (or some quirky things that the Service calls real estate).  So SF for industrial, Commercial for MF.  All will work.  However, if you're buying the structure on land that you do not get a deed or long term land lease for then it is not real estate and may not be exchanged for other real estate in a 1031.

The other issue is that you would be buying less than what you sold.   This too is fine but you will incur tax on the difference.  If you sell a property that you have a 400K profit in for 500K and you buy for 400K then you would pay tax on 100K of the profit but still shelter the remaining 300K of profit in the 1031. In that same scenario if you bought for 200K you would pay tax on the 300k difference but still shelter the other 100k of profit. The thing for you to pay attention to is are you buying down so much that you will end up owing all the tax?  If so then there would be no motivation to do a 1031.

However, @Matt Motil is correct you could also buy the hangar (as long as it is real estate) and another investment property of any type so you could reach the investment target set by your sale.

Good potential move. There's just a few airplanes in WI with the air show aren't there?