1031 two family to one family

[higgins]

Massachusetts; How do I figure out how much I can put toward another single unit investment rental property to make use of the 1031Exchange in my particluar situation described below.

I'm selling an owner occupied two family, and I'm buying a one family as my principal residence.
I'm not thrilled about cutting uncle sam in on my gain on the rental portion at this time.
The rental unit is about 1/3 the square foot area of the entire homes living space.

I've taken depreciation on 50% of the original purchase price due to the rental portion (not including land) for the 20 years I've owned the property.
I've also added a garage, installed all new windows, vinyl siding, and roof to the property over the past 10 - 15 years.
I've also take depreciation on each of these improvements.What is the name of your state?

 

[tranquility]

A 1031 is not available in the scenario you mentioned. You might exchange the two family into a single family rental and then at some future time decide to change that rental into your personal residence. The amount of time you must hold the property as income property is a facts and circumstances test and there is not a set time. I'd say 6 months is the shortest and I'd recommend at least a year. (Even that might not be enough, depending on the facts.)

With the complex situation you describe, you are not going to be able to calculate the basis on the new property yourself. See a professional to do your taxes for the exchange and in order to determine if you are going to get any boot from cash out or reduction in debt base on actual numbers.

 

[higgins]

I'm sorry I wasn't clear about my intention after selling the two family. I'm going to buy a single family for my primary residence and also but another single as rental/investment.

 

[tranquility]

You can only exchange into "like kind" property. A 1031 will defer the taxes (and bring over a reduced basis) on the portion of the deal which is like kind and will not be availabe for the personal residence portion. Anything which is put into the personal residence will be considered boot and you will be taxed on that as well as the reduction in loans outstanding on the income properties.

 

[higgins]

On a 1031 exchange with regard to investment rental property, does the original cost basis AND the capital gain have to be rolled into the new property, or is it just the capital gain?

 

[LdiJ]

On a 1031 exchange with regard to investment rental property, does the original cost basis AND the capital gain have to be rolled into the new property, or is it just the capital gain?

That question shows that you really don't understand 1031 exchanges at all. You need to do a little studying up on the subject because they are not nearly as simple as you might think.

The short answer is that the entire proceeds must be invested in the new property.

Read Publication 544, the section on "like kind exchanges"

I also recommend that you get a consult with a local tax professional to get a clear picture of just what you might be facing in terms of capital gain on the property. It may be that what you are contemplating may not result in enough of a tax savings to be worth the hassle. There will be some cost involved in a like kind exchange, and depending on the actual equity in the rental portion of the property, the cost might exceed the tax savings.