1031 Exchange FAQ - DUPLEX
How do I 1031 Exchange a duplex when I live in one of the units?
A 1031 Exchange of a rental property qualifies under the Real Estate Held for Business use provision of the IRS's 1031 Exchange Statue. Whether you live in one the units doesn't matter in terms of qualifying for a 1031 exchange. What is important is that you get help from your CPA or Tax Attorney when writing the Purchase and Sale Agreement with your buyer. A lot of this depends on how your property is deeded. If each unit is deeded separately, this is a no-brainer. If they are all under the same deed, you will need to do some additional wrangling in order to split out the deeds. But, yes, 1031 Exchanging a duplex
is possible even if you are living in one of the units. We encourage you to discuss this with your CPA or Attorney for more information.
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I would like to 1031 Exchange a duplex for a home with a rentable mother-in-law apartment in the basement. Can this be done?
Is the duplex
a rental? If so, you could qualify the 1031 Exchange replacement property if it is rental property. Family rentals count under Section 280A. If the home (replacement property) is all used for a rental - no problem. However, if the client plans to occupy the new home and only rent out the basement, an allocation would have to be made between the personal residence portion and the rental portion. Your tax person should do this. This same logic also applies to the duplex
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You mean I can 1031 Exchange a house for a duplex, triplex, etc?
It depends. You have to remember that a qualified 1031 Exchange must be of like-kind real estate. The only 2 kinds of real estate that qualify for IRS 1031 Exchange is Real Estate held for investment purposes, such as land AND Real Estate being used as a Business, including duplex
es, triplexes, etc.
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Can I 1031 Exchange a duplex for a motor home?
The quick answer to this question is NO. A 1031 Exchange requirement is that both properties must be of like-kind. Like kind real estate is ONLY property that is purchased for the purpose of investment, such as land, AND, property held for a business or trade, such as a rental property. Your duplex
would certainly qualify for 1031 Exchange if you have been collecting rents from it for 2 or more tax periods. But a motorhome has a completely different tax classification and is not considered as like-kind. More information about Like-Kind 1031 Exchange properties, can be found here.
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Hi,I have three small rental properties (one duplex and two four units) in Minnesota that I would like to exchange for property on the island of Oahu, Hawaii. I'm wondering how realistic and possible this might be. I would also like to exchange my personal residence as well. Thanks, Bruce
In a 1031 Exchange, what type of property can farm land be traded for?
All land qualifies for 1031 Exchange as it is classified by the IRS as Real Estate Held for Investment Purposes. Farm Land falls under this category. A 1031 Exchange must be like-kind and according to the IRS Like-kind Real Estate is Real Estate Held for Investment AND Real Estate held for a business or trade. What this means is your Farm land in a rural area is considered like-kind along with an apartment complex downtown. You should realistically trade your farm land for another piece of land or another piece of real estates that is held for business or trade, such as a duplex
or rental home. The choice is yours. Happy hunting!
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How long do you have to wait to do a 1031 Exchange on a property?
If you are thinking about a 1031 Exchange, you should really research the 4 classifications of Real Estate as it is defined by the IRS. We have a great article about it, located here. To answer you question, you need to figure out what classification of property you have. Since only property that is held for investment AND property that is used as a business or trade qualifies for 1031 Exchange, it's important to understand this.
Property held for investment purposes, which is almost always land, can be exchanged almost immediately after it is purchased, this is because it is a property that is held for the purpose of it going up in value.
Property used as a business or trade, is usually some sort of rental property, such as a house or duplex
. The rule of thumb is that you have to be able to prove to the IRS that YOU have collected rents from this property for two tax periods. Many believe that it is two years, but we've seen examples of properties passing IRS scrutiny in 18 months. 2 tax periods is the safest bet for holding a property before you 1031 Exchange it.
Caution. The reason we say 2 tax periods, is that you want to prove to the IRS that your intent for holding the property is not for a quick flip for profit. Attempting to 1031 Exchange property in less than 2 tax periods that your property could be in danger of being classified as Dealer Property, or property held for sale to customers. This type of property does NOT qualify for 1031 Exchange.
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What type of property can I 1031 Exchange a Farm for?
Thanks for asking! If you farm qualifies for 1031 Exchange, the property will be considered as like-kind, according to the IRS. If the farm is considered like-kind, your qualify for 1031 Exchange with any other like-kind 1031 Exchange property. This includes other qualifying farms or ranches, raw or developed land (regardless of zoning), or rental properties such as duplex
es or apartment complexes. The possibilities for 1031 Exchange Real Estate are nearly endless and depending on your needs a good 1031 Exchange Realtor can help you find just the right property.
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