Should I go through 1031 Exchange?

[Kate Li]

Hi,

I own a 4 family house where I lived there for more than 6 years. Then moved to another state in the past 1.5 years. I want to sell this house and it’s 1.4mm. The purchase price of the house was 700k and has around 400k mortgage. Through the years, the renovation cost totaled to about 85k. Is doing a 1031 exchange for another property at 850k selling price makes sense. Or I should do a straight sell of the 4F, and use the proceeds to buy the 850k multi-family property with regular loan?

[Dave Foster]

@Kate Li, You actually get to take advantage of both the primary residence exclusion and a 1031 if you want.  You lived in 1/4th as your primary so that would make $350K (if all units are equal) of the sale) and the profit associated with that tax free.

You could then 1031 the $1050000 remaining and tax defer the rest.  That would necessitate you purchasing at least $1050000 ish (after closing costs) in replacement investment real estate.  So to defer all tax you would need to purchase the one you proposed and another worth at least $200K.  That would defer all tax.

If all you did was purchase the $850K property you would pay tax on the $200K difference but still shelter any remaining gain and tax in the exchange.

Being able to combine tax free and tax deferred is a big big deal!