1031 question


#1

We own a 4-plex that is fully rented.* We have permits to remodel one of the units and expand it from 500ft2 to 1,500ft2 at a cost of about $200,000.

When construction is completed we will move in and owner occupy the expanded unit.

If we live there for 2 years, and then sell the entire building, how will that play with a 1031?

Will we be able to cash out a portion of the net profit that is attributable to our personal residence and then 1031 the rest?

Of so, how should we calculate the split amount?

How do the rehab costs figure in?

Anything else I’m* missing?


#2

Yes, you can do this based on square footage or on appraisal of the separate living space. The portion you occupy as residence 2 of 5 years is exempt up to 500k, and the rest can be exchanged under 1031. The rehab should be attributed and accounted for on the 2 parts separately to add to the taxable basis.