1031 single home Rental to land

[Christopher Blackburn]

We have a single family rental property worth roughly 400k. With a 1031 exchange could we purchase the land to build multiple houses to rent for at least a year? Also could we build one of the houses for ourselves as a personal residence as long as the percent of the value of the residence property to the total property is less than the percent of the money brought in by the 1031 to the total property value?

Ie: purchase land for 1mil using 400k (40%)from the 1031. Then use less than 40% of land to build a personal residence on?

[Dave Foster]

@Christopher Blackburn, You sure can.  The key is that your intent as stated is to purchase the land to be held for productive use (ultimately as rentals).  Because your activity right up until renting will act a lot like a developer there will be a natural skepticism on the part of the IRS if ultimately audited.  You want to be careful about "changing your mind" and actually selling those properties as soon as they're constructed.

As far as taking some of the land to build your personal residence.  That too is fine.  The 1031 must be used to purchase investment real estate.  But in your example you could actually take 60% of the land and use that to build your personal residence on.  That would leave the remaining 40% for investment at a worth of $400K.