1031 like kind exchange requirements

[Ashley Tarver]

Hello! I have a single-family home that is my primary residence. Would i be able to avoid capital gains by selling it, then using  a 1031 exchange to buy a multi family unit that i plan to also occupy? Also, this has only been my primary residence for a few months because I recently sold my other primary residence—not sure if that makes a difference. Thanks in advance!

[Sean Ross]

@Ashley Tarver,

Thanks for the question.

When you sell a property that you are occupying as a primary residence, unfortunately you are no longer eligible to perform a 1031 exchange.  It sounds like this used to be a second home or rental property for you - is that true?

Normally in a spot like this, we would recommend to a client that you sell your primary residence and claim your capital gains exemption under Section 121, but you have two strikes against you: (1) you have not lived in this property long enough to qualify for that, and (2) I'm hoping you already claimed an exemption on the sale of your other primary residence a few months ago, and you can't claim Section 121 exemptions within 2 years of each other. 

If you have previously treated this property as an investment property, one option you have is to move out of this property, move into a different property you own (or into a rental), and then do a 1031 exchange. You would want to work closely with your CPA or a good 1031 company to nail down the timing of it all. 

Do you have a lot of capital gains in this property?

How quickly are you looking to sell?

(as an aside, it is generally possible to 1031 out of a single family rental and then into a multi-family that is part investment property and part primary residence... It isn't always 100% tax efficient to do this, depending on circumstance)