Does this qualify as a 1031 exchange?

Question

My wife and I are selling a two-family home, one unit in which we have also lived for the past seven years. We plan to purchase a one-family home. Our capital gains will be about $400,000. We plan on using this gain as the down payment for the new house. Is this considered a 1031 exchange? Will the sale of the two-family home be considered just capital gain because it is our primary residence?

Any help is greatly appreciated.

Thanks

Answer 1

You do not qualify for a 1031 exchange in this situation. The concept involves selling one investment property for another. While HALF of your current home would qualify under the 1031 rules, the property you are purchasing is a single family home for YOURSELF, and that takes it out of the investment exchange category. You are buying private residence property, not investment property. However, assuming you have lived in half of your current property for more than two years, you would qualify for the exemption from capital gains on that half of the property.

Consult an accountant for further clarification.

Answer 2

I'm pretty sure you can't do it. Call a CPA or Real Estate attorney to make sure. Here's the law:
Section 1031 (a), in general, permits property used in a trade or business or held for investment to be exchanged solely for like-kind property which will be used in a trade or business or held for investment, without the imposition of tax. A deferred exchange allows the taxpayer to relinquish property currently and receive like-kind replacement property in the future.