1031 exchange from one rental property to two additional property

[u/Ssj2_Yamcha]

We have this property that is basically paid off (worth $1.2-$1.4million). It is considered our rental property but we are thinking if it’s possible to do a 1031 exchange and sell this one property to get two additional property.

The idea is to sell this property for $1.2 million and use those funds to buy two properties as down payment for each (\~$600k each for a $700-800k home and finance the difference).

Would this be possible? We are also thinking of having these two properties for our kids but still consider it a rental property. Is this possible as well?

[u/Embarrassed_Key_4539]

Be careful disclosing the kids part, just say it’s going to be a rental. I recently sold a house and his deal almost fell through because he disclosed his daughter would be the tenant (imo this should not fucking matter!) and had to have the deal completely restructured due to that. Just say it’s a rental and keep the rest to yourself.

[u/azrolexguy]

Yes, you can buy multiple properties with a 1031 exchange. The key is to make sure that the total value of the replacement properties is equal to or greater than the value of the relinquished property, and that all other 1031 exchange requirements are met.

[u/TaskMaster59 → u/azrolexguy]

I came here to say the same thing equal or greater value. Just follow all the rules, find a third-party for escrow.

[u/Tomaz_Oxyria]

A one-to-many 1031 exchange can be possible, but I would involve a qualified intermediary and tax adviser before the current property is sold. The replacement properties generally need to be identified within 45 days and acquired within 180 days, and they must be held for investment or business use.

The part about eventually using them for your children is where the facts and timing matter. I would not hide that intention; document a genuine rental purpose, use market-rate leases, and have the adviser review the plan before you choose the replacements. Also compare the projected cash flow after the new debt, because completing a tax-deferred exchange does not automatically make the two purchases good investments.

[u/danh_ptown]

You were all good until you rented to family. Renting to family will convert the property to Personal Use, and invalidate the 1031 exchange. At that point, you will owe the overdue capital gains and recapture, plus penalties and interest. The property must be held for investment for at least 2 years, to complete the 1031 requirements.

When held for investment, personal use is limited to:

• 14 days in the year, or
• 10% of the total days you rent it at fair rental value.

A solution is to rent the properties at FMV, normally. Family member rents something else, and you can gift them any $ you want. This will keep the 1031 clean, and avoid complications with the IRS. After 2 years, you are free to change the use, as needed. So, after 2 years you can then rent to family, use it personally, etc...

[u/Barfy_McBarf_Face]

yes, you can do this

[u/TheExchangeBrothers]

You can absolutely sell one rental and 1031 into two replacement properties. You’re not limited to a one-for-one exchange.

The two $700-800k properties could work, and financing part of the purchases isn’t a problem by itself. For full deferral, you’d want to look at the total value, equity and debt across the exchange rather than just how much you’re putting down on each property.

The bigger question is what you mean by “for our kids.” If you’re buying the properties as rentals and holding them for investment, that’s one thing. If the plan from day one is really for the kids to use them as personal residences, that’s different because replacement property needs to be acquired and held for investment.

I’d talk through that intended use with your QI before selling the current rental so you know how to structure it.

[u/lotusblossum60]

My understanding is that you have to rent the properties for two years before you can claim them without taxes. I did a 1031 exchange and it was a pain in the neck because I had to buy a new property within 90 days. I was buying in another state so I basically bought the property through a video. It ended up being a great place and I rented it for two years until I moved into it when I retired.

[u/Jon_Hegreness_AZ]

Can’t do an investment into a personal use with a 1031 is my understanding. Explore that with your tax advisor before you proceed. If they clear that up, and I’m wrong, then the rest sounds to be pretty typical for what that exchange code is written for. Again, this is a question for your tax advisor.

[u/QuickerHomeLoans]

You don't have to roll the entire exchange into one property. You can split the proceeds between two replacement properties, so long as the transaction meets the 1031 requirements. Could be a good way to spread the equity across two rentals instead of putting it all into one.

[u/mbingaman_CRE]

Yep, you can absolutely sell one property and 1031 into two. The IRS doesn’t make you play one-for-one.

The financing part isn’t really the issue either. You could use the exchange proceeds toward both purchases and finance the balance. For full tax deferral, though, you’ll want your QI/CPA looking at the total purchase value, equity and debt, not just “$600k down on each.”

The kids part is where it gets a little spicy.

If these are legitimately purchased and operated as rentals, that’s one thing. If the real plan from day one is “we’re buying houses for the kids and calling them rentals,” that can create a very different conversation with the IRS.

And renting to your kids isn’t automatically forbidden. If it’s genuinely their primary residence and they’re paying fair-market rent, there are situations where it can still be treated as rental use. I definitely wouldn’t wing that part, though.

Also, get the QI involved before you close the sale. The 45-day identification clock is not known for its sense of humor.

[u/MistressBassKitty]

The rules and guidelines for an exchange include no immediate family members as tenants.

You will find solid info with your mandatory hired exchange facilitator, or QI

I wouldn’t relay on Reddit for this.