We own a apt in Manhattan, after sale it should net about $300k. Currently my family & I are in a rental; of course I would rather own a home.
If I sell apt and plow the proceeds via a 1031 into an investment prop, how long is it until I can evict the tenants and move my family in without the IRS disallowing the 1031 and coming after me for capital gains?
Also if I find a suitable property and tie it up via an option or lease/option, will that still work for a 1031? That way I could find a good property, tie it up, sell the NYC apt at leisure, and I won?t have to worry about the 1031 time bomb exploding before a good exchange is found.
Maybe I’m missing something here, but is the Manhattan apt a rental? You never say, and that’s important to know, because the answer could change your tax situation dramatically.
Have you ever lived in the apt as your primary residence? If you have lived in it for an aggregate total of 24 months over the past 5 years, then a huge chunk of gains can be realized tax-free ($250K for singles, $500K for couples).
Also, another possibility for the 1031 MIGHT be (not sure) to use the proceeds of the sale to purchase a multi-family, where you could live in part of it and collect rent from tenants in the rest.
You MIGHT be able to get the best of both worlds that way—tax deferral on the gain (because you’re buying another rental property) and decent financing (because this rental property–it’d have to be a 4-plex or smaller–could be considered a Single Family Home).
There is no time limit. However, you can only do a 1031 exchange if your intent is to hold the acquired property as a rental property or for an investment or for use in you business.
Different advisers give different advice. They almost all suggest that you not acquire and convert to personal use in the same tax year. Some suggest waiting two years. The longer you wait the clearer it is that you bought the replacement property as an investment property.
I might suggest a couple of approaches. Refinance the property well before the sale and use the cash for your personal property purchase. Your replacement property will have to have at least as much equity and at least as much debt as the relinquenced property to make it a fully tax-free exchange.
You buy a replacement property as near as possible to your sales price of the relinquished property. It sounds to me as though you will have a lot of equity in the property. Then you might later–like next year–refinance the property to pull out cash for your personal residence.
You might also just use some low/no cash downpayment way to buy your own personal residence. Then use the cash flow from the rental property to help you pay your high mortgage payments.
Now, this brings up the point. Can you find a good cash flow property as a replacement? If not, you might want to look at some apartment complex in the middle of the country or in the Southeast. For instance, I have noticed aparments for sale in Oklahoma CIty for around $9 to $25K a unit. You could probably get good cashflow.