Two relinquished properties for one replacement property?

Question

Has anyone sold 2 investment properties and combined gains into a 1031 exchange for 1 replacement property? Tips?

Account Closed · Answer

You should talk to @Dave Foster.

Dave Foster · Answer

@Vicki Chu, Each exchange will have it's own calendar so you'll have to really stay sharp and calculate risk.

If you are wanting to combine two sales into one purchase the purchase is likely to be a much larger asset than you would ever buy if you only sold one property.  But what if one sale has already happened and it's now 30 days into the identification period for that sale and the other property hasn't contracted or closed yet?  Now you're in a quandry.  You can still name only large properties on the first list and gamble that the other property will close within the 180 day window of the first sale so you can use both in the purchase.  Or you can name a fall back that would take care of only the first sale incase the second sale went south.

It's best to work hard to manipulate the closings of your sales to be as close to each other as possible so those calendars match as much as possible.  The dates of the first sale will be your weather bell.

There is another strategy that is slowly gathering steam for situations just like this using fraction TIC products that have a buyback provision.  In the right circumstances you might be able to sell your first property and 1031 to buy a % interest in a fractional TIC product.  Then shortly later when the second property closes you again 1031 it to buy another % interest in the same TIC.  At this point you have effectively combined your two properties into one TIC interest.  So at a later point in time paying attention to the need to establish holding intent, you exercise the sales provision for the TIC and now do one 1031 exchange for the combined % interest into a larger fixed full ownership asset.