Sunday, July 26, 2015

1031 Exchange with Multiple Owners

Yesterday I had a discussion with a realtor friend about doing a 1031 exchange to a larger property.  Currently I own a condominium with my 2 siblings. One of our goal was to sell the condo and exchange it for a larger rental unit. With 1031 exchange we will not incur any capital gains tax as long as we acquire an equivalent or larger property in a specified time.

After the discussion with my friend I learned a few things.

1 - It is perfectly OK to do a 1031 exchange from a single unit condominium to a multi unit apartment since both are rental properties. Our condo has been rented out for several years. You can also exchange one unit for multiple units.

2 - When multiple owners are involved it may be easier to take out a commercial mortgage for a larger income property.  In this case it will have to be a property with 5 units or more. A commercial loan is based on the down payment and the cash flow. Therefore, documentation for personal income need not be submitted which can be complicated when 3 people are involved.

Here's a link to Biggerpockets on investment property loans..


3 - With 1031 exchange you have 45 days from the time of closing to identify a new property, and a total of 180 days from the closing to acquire the replacement property. Therefore, you usually need to delay the sale of your property until you identify the property you want to purchase.

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