Questions about 1031 exchange with primary residence $250k exclusion - tax planning for future real estate moves

Your questions touch on some interesting aspects of real estate tax planning! Let me help break this down: 1. The $250k exclusion wouldn't fully cover your situation as you've described. When you 1031 a property and later convert it to a primary residence, the exclusion doesn't apply to the portion of gain that's attributable to the "non-qualified use" period. So that $200k gain from the original rental would still be taxable, but you could exclude up to $250k on any new appreciation that occurs after you make it your primary residence. 2. Yes, you can definitely refinance from an investor loan to an owner-occupied loan once you actually move in. Lenders are typically happy to do this as owner-occupied loans usually have better rates. 3. The IRS doesn't specifically care about you increasing your loan size in a 1031, but they do care if you take cash out of the exchange. Any cash you receive (boot) is taxable. However, increasing your loan and keeping the proceeds is generally fine if done properly. 4. The 1031 exchange value is calculated on the net sales price after selling expenses (so after fees). 5. If your replacement property costs less than what you sold, the difference is considered "boot" and is taxable in the year of the exchange. It's essentially the portion of gain you didn't roll over. 6. Yes! If you converted 25% of your multifamily to personal use for the required period, you could exclude 25% of the gain up to the $250k maximum. Just remember that tax laws can be complex and situations vary, so consulting with a qualified tax professional about your specific circumstances would be wise.

I used taxr.ai for a similar situation last year and it was super helpful. I was trying to figure out a 1031 exchange for my rental property and also had questions about the primary residence exclusion. I uploaded my previous tax returns and property documents to https://taxr.ai and they analyzed everything. The site basically broke down all the specific rules that would apply to my situation and showed me exactly what would be taxable and what wouldn't. It even highlighted some deductions I could take during the transition period that my accountant had missed. What I found most helpful was that they walked through different scenarios - like comparing selling outright vs doing the 1031, and showed the tax implications of each option over different time periods. Made it much easier to make an informed decision.

I was skeptical like many of you about using an online tax service for something as complex as real estate investing, but after trying taxr.ai, I'm honestly impressed. I was planning a series of property transactions similar to what you're describing, with a rental property I wanted to eventually convert to a primary residence. The analysis I got was incredibly detailed - it pointed out that I would lose a big portion of my Section 121 exclusion due to the "non-qualified use" rules from the Housing Assistance Tax Act of 2008. That's something my previous tax preparer had completely missed, and it would have cost me tens of thousands in unexpected taxes. The report even included a timeline visualization that showed exactly how the 5-year lookback period would affect my specific properties and how much of the gain would be excluded vs. taxable at different selling points. Made the decision process so much clearer.

Have you tried calling the IRS directly about these questions? I've found that for complex situations like this, getting an official answer straight from them is the way to go. Problem is, I used to spend HOURS on hold (like 3+ hours sometimes), which was infuriating. I started using Claimyr (https://claimyr.com) after seeing it recommended here, and it's been a game-changer. They have this system where they wait on hold with the IRS for you and call you when an agent picks up. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c For complex tax planning situations like yours with the 1031 exchange and primary residence questions, I'd definitely recommend getting an official answer. The IRS has specific departments that handle investment property questions, and they can give you binding answers to plan around.

I was highly skeptical about this Claimyr service when I first heard about it. I've been doing real estate investments for years and have wasted countless hours on hold with the IRS trying to get clarification on complex situations almost identical to yours. After finally trying it, I'm completely sold. Last month I needed clarity on a 1031 exchange question involving depreciation recapture when converting to a primary residence - almost exactly your situation. Used Claimyr, and instead of wasting my afternoon on hold, I got a call back when an agent was on the line. The agent transferred me to someone in their specialized property transaction department who actually gave me a detailed explanation of how the non-qualified use rules would apply. The information I got saved me from making a costly mistake in my property conversion timeline. Would have owed thousands more in taxes if I'd followed my original plan. Honestly wish I'd known about this service years ago.

One thing nobody's mentioned yet - the timing requirements for a 1031 exchange are super strict. You have 45 days to identify potential replacement properties and 180 days to close on the new property. If you miss either deadline, the whole exchange fails and becomes taxable. Also, you need to use a Qualified Intermediary to handle the funds - you can never touch the money yourself during the exchange or it becomes taxable. The QI will hold the proceeds from your sale and use them to purchase the replacement property. Given your multiple property strategy, you really need to map out the exact timing of each transaction to make sure everything qualifies as you expect.

I went through almost this exact scenario last year. One thing to consider is that the "non-qualified use" rules have an important exception: periods where the property was used as a rental AFTER it was your primary residence don't count as "non-qualified use." But in your case, since you're going from rental→rental→primary, the gains from the original property would still be fully taxable when you eventually sell, regardless of how long you live there. The strategy that worked better for me was moving into my rental for 2 years FIRST, then doing the 1031 exchange from my new primary into another property that I then rented out. Different sequence, but much better tax outcome.