Creative 1031 advice

[Jesse Mitchell]

Hey there bigger pockets. I have been investing for a few years and have built a modest portfolio in that time.  I have stumbled into an interesting situation and am looking for feedback from anyone that might have been in the same situation.

so I am selling a duplex of mine, profit will be around 60k

I am also buying a new primary BUT the new home is currently a rental and I will have to honor tenants rights until their lease ends on 7/31 and closing in may. I am using traditional 5% down financing to purchase my new primary.

so, for 1. Do you think I can use 1031 monies to buy it without it being a commercial loan?  And do you think if I go improvements to it while it’s rented I can utilize those expenses as write offs?

Trying to minimize my tax hit from the duplex and exploit as many benefits as I can by having to rent my new primary for two months.  Thanks in advance! 

[Dave Foster]

@Jesse Mitchell I'd be wary of doing that.  Your intent must be to hold that new property for investment use.  Your intent can change.  But conservatively that should happen after a year or two.  In this case you are using it for investment initially.  But your intent (as evidenced by your lending) is to buy a primary.  And that exposes a different intent.

If you could hold that property for a year or so before moving in then it's a different situation.  But then you have to worry about a lender wondering why you bought an investment property with primary money.

If you want to go the primary lending route you're not telling someone the truth - either the IRS or the lender.

So if you want to shelter the tax on the sale then buy the house as an investment with investment money.  And use it for a year and then convert it into your primary.  That would work.