Buying a home partially using 1031 money from parents

[Mary Chen]

I'm just not sure what's the best way to do this. So looking for any clever strategies. My parents have an investment home in a different state that they're just been looking to get out of because it's no longer easy to travel. They've been thinking about buying a home in our neighborhood but the housing pricing these days indicate that selling value (e.g. $600k) is just not enough to cover the cost of the new home ($900k) and they no longer can qualify for loan. Is it possible for me (the child) to put my name on the loan? And to add complexity, I also have a home (that I bought 5 years ago). I know I can afford the second loan, but It would be nice if we could eventually make this new home a home I could live with my parents because it is larger but just not sure if it's even possible. Any thoughts?

[Dave Foster]

@Mary Chen, There's a couple different issues here.  The first is easy to accommodate.  The second needs some runway.

1. Your parents are selling an investment property for around $600K so if they want to do a 1031 exchange they will need to take title to at least $600K in real estate.  If they're buying a property for $900K then they need to take title to 2/3rds of the replacement property.  But you can guarantee  the loan and you could take title to any remaining % interest as a tenant in common with them.

If the property you are selling is also an investment property then you can do that as a 1031 exchange also as long as you meet the reinvestment requirements.

If your property is  your primary residence and you've lived in it now for 5 years then you could sell and you'll get the first $250K of profit tax free.  And you won't have a reinvestment requirement.  So that would make it simpler.

2. In a 1031 your parents are selling an investment property and they must buy a property they intend to use for investment.  So they could not move into it right away.  They would need to use it for investment for a year or two.  But then they could convert the property from investment to their primary residence.  This is where you need the runway.

But there's a couple good options for you in this scenario