Contemplating 1031 Exchange - Is this possible?

[Nate B.]

I own two homes, one of which is my primary residence, and the other being an investment property, currently being occupied by my parents. They have been paying us a minimal amount of rent over the past 2 years, while living in our investment property.

My parents' health has been deteriorating and we're planning on having them move in with us, as to have them closer and provide the care they need. Ideally, I would like to sell both homes, and build a new home that has an in-laws set-up, where they would live. 

Is it possible that I could do a 1031 exchange by selling both homes, use the proceeds from both sales toward the purchase of a new home, and defer the recognition of capital gains and related federal income tax liability on the exchange?

Thanks in advance. Nate

[Matthew Ryan]

@Nate B. - If you go the route of 1031 and have have difficulties completing the 1031 exchange on the capital gain portion, consider opportunity zone investments. You have 180 days to invest into a "fund" which can be another RE investors deal or your own. You would defer the capital gain until 2026 and then pay 85% of the original tax liability in that year should you invest this tax year. If you buy a property on your own you must substantially improve. I can get into more detail about how this works provided you are interested. If you hold the investment for ten years, you pay no tax when you sell (1031 you have to keep "rolling"). Similar process but with some advantages, some disadvantages. Either way, you have two options at play and it sounds like some good equity so congrats!