How to proceed on buying 2 houses this year

[wjmurray]

What is the name of your state? Florida
I am currently in home #1, have lived in it as primary res for 4 yrs.
Owe 120,000; Worth 280,000; have HELOC for 140,000

Due to company transfer, am purchasing home #2, and only plan to live there for approx 6 months, then will sell home #2 and move into home #3, which is currently in pre-construction, and live there for 3-5 years. Both will cost approx 400,000 each.

For both homes #2 and #3 would like to do 1st and 2nd mortgage (no PMI) interest only loans (smallest payment possible).

Would like to keep and rent home #1 (for its appreciation) for up to 3 yrs.

Any thoughts on:
(1) when to sell home #1, i.e. sell when I move into #3 so my Section 121 clock starts ticking on #3 asap
(2) should I treat home #2 as an investment and apply 1031 exchange rolling appreciation into #3? If so does this mortgage need to be as investor as opposed to primary residnece? Do I need to keep #2 for a full year in order for this to work?
(3) Use funds from exisiting #1 HELOC and avoid 2nd mortgages on #s 2 and 3 to eliminate additional closing costs? If I use up all the HELOC thus have no profit on #1 when I sell it, does this minimize the Section 121 benefit?
(4) Any other input on ways to maximize profits for this scenario?



Post this in the tax section and tell them we sent you over so you do not get nastygrams about double posting.

[Rhubarb297]

Originally Posted by wjmurray

What is the name of your state? Florida
I am currently in home #1, have lived in it as primary res for 4 yrs.
Owe 120,000; Worth 280,000; have HELOC for 140,000

Due to company transfer, am purchasing home #2, and only plan to live there for approx 6 months, then will sell home #2 and move into home #3, which is currently in pre-construction, and live there for 3-5 years. Both will cost approx 400,000 each.

For both homes #2 and #3 would like to do 1st and 2nd mortgage (no PMI) interest only loans (smallest payment possible).

Would like to keep and rent home #1 (for its appreciation) for up to 3 yrs.

Any thoughts on:
(1) when to sell home #1, i.e. sell when I move into #3 so my Section 121 clock starts ticking on #3 asap
(2) should I treat home #2 as an investment and apply 1031 exchange rolling appreciation into #3? If so does this mortgage need to be as investor as opposed to primary residnece? Do I need to keep #2 for a full year in order for this to work?
(3) Use funds from exisiting #1 HELOC and avoid 2nd mortgages on #s 2 and 3 to eliminate additional closing costs? If I use up all the HELOC thus have no profit on #1 when I sell it, does this minimize the Section 121 benefit?
(4) Any other input on ways to maximize profits for this scenario?



Post this in the tax section and tell them we sent you over so you do not get nastygrams about double posting.

I don't know the best mortgage strategy.. But I do know some about 1031 exchanges and other tax strategy.. The strategy with regard to House #1 sounds okay. The exact timing that would be best would be difficult to say in advance...it would depend in part on how well the market does and how much it appreciates.

Regarding House #2 there is no strict one year requirement. (Regarding 1031s the only strict holding period is a two year holding period when the 1031 transaction is between related parties, which I don't believe will be the case here.) What is important is the intent of the taxpayer. If the taxpayer only holds it for three months, then the IRS may consider that the property wasn't purchased for an investment purpose, but was merely property being flipped for a gain, which isn't considered investment property for 1031 purposes. (I know, I know...I think it should be too.)

Your biggest problem is that House #2 will be your primary residence. You can't use a primary residence as part of a 1031 transaction. (I'm not sure why you're even buying House #2 if you're only going to live there six months. Maybe you should forget using it as your residence...live in an apartment for six months.)

I'm sure some tax expert types can give you a better and more thorough answer. While I handle some 1031 transactions as in-house counsel, it's not something we do every day.

Originally Posted by wjmurray

...(2) should I treat home #2 as an investment and apply 1031 exchange rolling appreciation into #3?....

Start your investigation here at the horse's mouth:

[url]http://www.irs.gov/businesses/small/industries/article/0,,id=98491,00.html[/url]