1031 Exchange Question

[Matt Lander]

Hi BP,

I've done a good amount of research of 1031 Exchanges but have one final clarification that I'm still unsure on. In the "Like-Kind Exchange", you are required to purchase the next investment property at the same price or great than what you sold your original property for. For example, if you sell the initial home for $200k are you able to purchase say 2x properties at $205k each, rather than just 1 property at $205k. Essentially, are 1031 Exchanges a 1 to 1 or can it be 1 to 2 if you meet the purchase price requirements for both properties? 

Appreciate all the help! 

[Dave Foster]

@Matt Lander, it is the valuation or the reinvestment not the number of properties that is important.  If you want to defer all tax you must purchase at least as much as your net sale and use all of the net proceeds in the purchase or purchases.

So two very common 1031 strategies are 

1. Diversification - sell one property and use the proceeds as down payments on several properties (very common with folks working with turnkey companies)

2. Consolidation - sell several properties and cluster them into one larger purchase (very common with folks moving from SF into MF or commercial)

As long as you purchase at least as much as the aggregate of your sales.  Or as long as the total purchases are at least as much as your net sale and your use all of the proceeds in the purchase or purchases you'll defer all tax.