Primary Residence exemption and/or 1031 Exchange

[Fausto Carosella]

Hey All,

My parents are going to sell their primary residence they've lived in since 1984 in a suburb of Boston. It's a triplex. For the sake of simplicity I'm going to round the numbers. They bought it for 100,000 and lets say they sell it for 700,000. As a side note they already purchased the home here in Florida they will be moving into with cash and have been renting that out for a couple years. My question(s) is what amount will they pay capital gains taxes on? Will the 600,000 gain be divided by 3 and they won't pay capital gains on only their particular unit, or will the 500,000 max exemption apply to the whole building? If they wanted to work a 1031 exchange into this process how would that apply? Would they be able to 1031 the two rental units avoiding capital gains there and also use their primary residence exemption to avoid capital gains on their particular unit? I believe they can vacate the unit and then rent it out for a certain period of time (how long I don't know??) and then 1031 exchange the whole building... is that correct? What's the best way to go, and has anyone done any of these options? Thanks ahead of time!