1031 exchange on duplex with fha loan

[Horacio Gutierrez]

Hello,

Say I bought a duplex witj a fha loan and I live in one for a year and then move out and rent that unit and after a year can I do 1031 exchange or I cant because I have fha loan and lived in it?

[Dave Foster]

@Horacio Gutierrez, I think you've got it.  When you sell the property you can use the IRS process that is appropriate for how you are using the property.  If you live in one half and rent the other half then when you sell you can take 50% of the profit tax free as your primary residence exclusion (provided you have lived in it for two out of the previous 5 years and don't exceed the maximum of $250K profit if single $500 if married).  And with the other half you do a 1031 exchange.  You're exactly right that the values don't matter it is the % of use of each side as a proration of the entire gain.  And if you do a 1031 exchange on 1/2 of a $400K property then your 1031 reinvestment requirements are to purchase $200K of replacement investment real estate (the other $200k is part of the primary residence allocation).