All Forum Posts by: Kat Hughes

So you have two factors here, 121 exclusion (Owner occupied residence) and 1031 exchange (investment property). You'll likely want to consider how to do both of these...

The 121 exclusion seems like it may apply to both properties since you say the MFR was 'turned into investment', but you can only take it once every two years. I don't believe there's a way to 'bundle' multiple 121 sales in a single year...

1031 will apply to the rental portion of your MFR no matter what. So you could sell now, take the 121 exclusion on a portion and then 1031 the rest...

Now here's how I'd be trying to make this work...sell the MFR now and take the 121 exclusion. Also 1031 the remainder into a residence where you want to go. Rent that residence out to comply with the investment req's of the 1031. Now you move in say 6-12 months, and rent out your current home moving into the 1031 purchase in your destination state. As soon as you cross the threshold to claim another 121 exclusion you sell your current home claiming the 121 exclusion. The absolute final piece of this is the home you move into will eventually be eligible for 121 (stay there two years) and you'll receive a pro-rated capital gain reduction on it over time. How much of an impact that is will depend on dates and values etc, but that's something to evaluate later...

This all sounds good in a vacuum, but obviously the details will change how feasible or effective this is for you...

@Kat Hughes, A couple of folks have mentioned your ability to sell either 1/2 of the Hollywood home or the Sylmar home and take the first $500K of gain tax free.  From the looks of your loan it doesn't appear that you've been in that property for 2 years.  But there still might be the possibility of a partial tax free sale you can discuss with your accountant.

But my take on this whole thing is a little different.  Here's why.

1. You can only do one primary residence exemption every 2 years.  So you'll have to choose either Hollywood or Sylmar.

2. I think you've got the most taxable gain on the Hollywood sale.  And I could be wrong but I don't think you have as much gain on the Sylmar house.

3. If you sell Hollywood and take the primary residence exemption (because you've lived in it for 2 out the 5 years prior to selling). Then that means you will only have the back unit in a 1031 exchange.  This will drastically lower your reinvestment requirements.  and provide the greatest tax free cash.

4. It is possible to do both a 1031 and a primary residence sale on a multi unit property.

Done this way you will have all the cash from the sale of Sylmar (minus some amount probably small of tax).  And you'll have approximately half the cash from the Hollywood sale tax free.  This can buy your next house and set up your business or whatever.  The 1031 of approx $750K would buy a new investment property where you move to.  so your next rental investment is in your backyard.

And if you really want to put this plan on steroids - use the $700K as a down payment on a $1 mil 4-plex.  You only need to use $700K as investment.  You could move into the other unit.  And keep all of the remaing cash from the 2 sales to build your next life.

Hi Kat, 

Moving out of state is a big move, especially with aging parents, so that will be probably the hardest decision you will make here. As far as selling, I would definitely need to know a little more about each property, but talking with a tax professional, and seeing if you could sell the multiunit in NHWD with the tax benefits of it having been your primary for 2 of the last 5 years, seeing if that's an option. I would try and do that if possible, obviously your tax professional can let you know. Let me know if you do want to sell that multifamily, I have a buyer in the area looking to buy a similar property as long as the rents aren't too below market rents. 

Let me know if you need anything in the meantime. Would love to hop on a call and go over your situation in more detail. 

Thanks, 

Robert

Talk with your tax accountant. See if the first property you can sell tax free as your primary residence 2 out of 5 years.  You can do the same with your current property.  

There is a limit on your gain which can be avoided, so check.  
Same goes for your parents houses.

If you don’t have that much gain on your current house, you might try seller financing if you do t need the money and try for a higher price.  Require a significant down of say $200,000 down so they have skin in the house.  Unless you have a lot of equity, I would pay the taxes and not do a 1031.  

If with your parents you have multiple property deal, you might try to package the deal to reduce commission percent.  

Hi Kat, moving in family is permitted, but depending on age of tenants, how long they have been there, you may owe them relocation fees. I am a local multifamily investor, and a lawyer also. Happy to share info of a colleague who represents landlords, and can offer advise on this. just DM me / connect and will send over. 

Hi Kat,

Great questions. I assume the tenant is month-to-month which should make it an easier process, but I would suggestion consulting a real estate lawyer about the situation. The small amount it might cost can provide more clarity and set expectations as you move forward.

I can share with you a referral if you'd like.

Good Luck!

As long as the units will be occupied by immediate family you are OK even in LA proper is my understanding. I believe the notice period is 60 days. In California. I am not a lawyer; but pretty sure of this information. 

If immediate family does not move in you will have a problem if your tenants feel they have been wronged. No idea what the consequences might be-but severe you can be sure.