1031 exchange Question

[Daren Weintraub]

Hi! I have a 5% investment with my parents in a commercial property. I was wondering what the tax implications would be if they were to buy me out? I was hoping to use that money and some of my savings to purchase a house hack. Is it possible to do a 1031 exchange from a commercial investment to a residential investment? Would the residential investment have to be worth more than the commercial investment property?

[Dave Foster]

@Daren Weintraub The first question that has to be asked to see if the 1031 is even an option is “what do you mean by 5% interest”?

If you have a deeded interest in the property itself as a tenant in common then you can do a 1031 on your tic interest.  But if you own 5% of an entity that owns the property then no you can’t 1031 your interest. First and biggest question!!!

If you can do the 1031 then you can replace that interest with any type of real estate as long as it is used for investment.  Investment use makes it like kind.  Usually a house hack implies you’ll be living there. Only the portion used for investment will qualify for the 1031

If you want to defer all tax you must purchase at least as much as your sale and use all the proceeds.