Buy it to complete your exchange and use it for investment long enough to satisfy intent and then convert it into your new primary.The conversion either way is perfectly fine and is not a taxable event. 

Contract Price: $200,000Property Cost: $(130,000)Improvement expense: $(35,000)Zoning Attorney: $(10,000)This nets me a $25,000 in gross profit RE Agent Commission $(12,000)Capital Loss YTD from other investments: $(7,500)Net Taxable Profit is $5,500First time i am doing this so wondering what the cost of filing a 1031 exchange and hiring an intermediate for escrowing typically cost?

Is it invested in stocks or funds that will need to be liquidated, creating a taxable event for you?

Taxable income the past 2 years around 38k/year, so how can he leverage some of that 1.2M equity?

Let's take a look at a scenario when depreciation is used and not used Scenario #1 (No depreciation used)$20,000 taxable income x 24% federal income tax rate = $4,800 taxes owed Scenario #2 (Depreciation is used) $20,000 taxable rental income - $7,000 depreciation expense x 24% federal income tax rate = $3,120 taxes owedEquity: Equity If you use a mortgage to purchase your rental properties and your rent covers all expenses, your tenant is technically buying your property for you.

Most conventional lenders do not offer such loans.Leading national providers include:First Western Federal Savings in SDNorth American Savings Bank in MOSolera National Bank in COTitan Bank in TXWhen an IRA uses mortgage financing, it will create taxable income in the form of Unrelated Debt Financed Income (UDFI). 

You can combine this with a 1031 exchange and defer the taxable gain from the other 2 units into a new property and have the whole transaction be tax free.

The cash generated in this is not taxable and can be used as you wish in the improvement of the new property.

Tax time and a K1 to offset passive gains further reducing your taxable passive income, that's the benefit of real estate even as an LP.

Their taxable gain will be based on their adjusted basis in the property.