Partial 1031 exchanges?

[Tim Mospanyuk]

Hello, I’m a little situation here and I’d greatly appreciate some advice. I bought and lived in a property for 6 months while renovating it. It was purchased for 200,000 and I believe I can sell for 290,000 or so. If I sold it, can I keep 50% of the gains to pay off some debt accumulated from the renovation and use the other half on a down payment for a larger property? If so, would it be possible to 10-31 exchange that half to differ taxes? Thank you!!

[Dave Foster]

@Tim Mospanyuk, sorry dude - you're kind in a tweener pickle.  You haven't lived in the property long enough to qualify for a tax free sale as your primary residence (unless you meet one of the exceptions).  And it sure doesn't sound like you had the intent of holding that property for productive use and your intent was primarily to resell so a 1031 exchange is out.  

One of the critical elements of the 1031 is that in order to defer all tax you must purchase at least as much as you sell.  What the other folks have been suggesting is a course where you do a partial exchange and take some boot.  That could work but with the reinvestment requirements any cash you take out or any amount you purchase less than what you sold would be treated as profit.  

So given what your goals would be any way (taking half of profit as boot and only reinvesting the other half as a down payment) I don't think you'd have much if any tax savings on this one..  

You're probably better off passing and paying the tax or staying there for another 1.5 years and getting it all tax free.