1031 exchange on split use property with 1 house number only

[Kimi Ho]

Hello everyone,

I am having trouble getting answers regarding a split use property that I am about to purchase. The property only has one house number and per appraisal is a single family residence. However, there are actually two complete units with one shared common wall only. One is a 3 bedroom 2 bath built in 1953 and the other is a 4 bedroom 2.5 bath built in 2007  (built as addition with full permits). We are intending on moving into the 2007 unit and rent out the other one. I am trying to get an answer from my exchange intermediary who says that is a question for my CPA. Upon asking my CPA, I am being told that is the job of the intermediary. Following is a description from the realtor selling the house: This is actually 2 totally separate, complete homes with one common wall!!! Original single story home, built 1953, has been totally remodeled with 3 bedrooms, 2 bathrooms, wood burning fireplace, covered rear patios & more. Secondary home built in 2007 is two story with 4 bedrooms, 3 bathrooms. I would appreciate any input into this

[Michael Plaks]

Originally posted by @Shahriar Khan:

@Kimi Ho similar to 1031 exchange name change where everything tied with buyer/seller SSN/EIN and you cant mix funds for 2 separate EINs/SSNs , properties needs to have separate account as tax paying entity to county office (i.e. 2 separate tax bills aka 2 addresses).  Splitting your property into allocation methodology will not hold up for any audit. 

To make thing clean, you should separate the address . Call up your city planning team and ask them what you need to do to add another address , may not cost you much and this was you will have 2 tax paying accounts where you buy 1 and use exchange fund for 2nd one. 

@davefoster i understand that splitting can be done but wouldnt that be overkill in this scenario ?

Yes, splitting the property tax accounts would be cleaner, but it is not required for the IRS purposes. I would certainly feel strongly defending such a case in an IRS audit.