Complicated 1031 Question

[Wendy Black]

Can you do a partial 1031 and pay taxes on the portion that is not used?

We have a SoCal condo in an LLC that's valued at $500k. We owe $85k. That would leave us $415k profit. Could we take $270k to buy one rental, take about $55k as a down on a second house (both in AZ), and then pay taxes on the remainder? In our case, the second house would be occupied by an ill family member. We would have to cover the mortgage at least partially) for a year or two. Hopefully, he'd be able to pay the rent or buy the house in the future.

[Dave Foster]

@Wendy Black, There's some issues here:

1. Debt doesn't determine profit.  Profit is the difference between your adjusted cost basis (purchase price +improvements-depreciation) and your net sales price.  So you need to recalculate your gain to make sure you understand your actual tax situation.

2. In order to defer all tax you must purchase at least as much as your net sale and use all of the proceeds from the sale in the purchases.  So you can't just reinvest profit.

In your case you would need to purchase at least $500K ish or real estate using all $415K of proceeds.  But the good news is that you can allocate those proceeds in any way you want in your purchases.  So you can absolutely purchase more than one property.

And you can purchase less than you sell or take cash.  You will pay tax on that amount and still defer any remaining tax in the 1031.