There are many questions that come up when it comes to 1031 exchanges of investment property. Here’s one that a client asked us recently: can you 1031 exchange into a multi-unit property and occupy one of the units?
Combining Section 1031 & Section 121
This is a somewhat complicated situation. In an ideal world, you could split the transaction into a part IRC Section 1031 exchange and part IRC Section 121 sale of the principal residence (so you can exclude some or all of the gain from the principal residence).
The 1031 part is the portion or percentage of the property used exclusively for business or rental.
In order for the principal residence part of the property to qualify for the exclusion the part used for principal residence must meet both the: (1) ownership test and the (2) use test. One is eligible for the exclusion if they have owned and used that portion of the property as their main home for a period aggregating at least two years out of the five years prior to its date of sale. One can satisfy the ownership and use tests during different 2-year periods. However, one must meet both tests during the 5-year period ending on the date of the sale. Generally, a person is not eligible for the exclusion if they have excluded the gain from the sale of another home during the two-year period prior to the sale of the home.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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