My mother owns 2 properties, her primary residence in southern CA and a residential property she rents out in northern CA. She has owned the rental property in northern CA for about 6 years and has rented continuously throughout. My mother is looking to move out of her primary residence and rent it out and buy another home that is smaller. She happens to have a close friend who has agreed to sell her home to my mother for $610,000.
My mother brought up the idea of perhaps conducting a 1031 exchange. I believe that she would be able to "sell" her home in northern CA, current Zillow value of $710,000 and exchange it for her friend's home. However, assuming the homes sell and are purchased for the price mentioned, my mother would have to pay long term capital gains tax of about $100,000 for the difference in value between the new and old home.
However, my mother would not be permitted to move into her friend's newly acquired home for 2 years because of 1031 exchange rules. My mother would have to rent out the new property for 2 years before being able to move in.
My mother has also envisioned having at least 3 residential properties, 1 to live and 2 to generate rental income. Could she in theory "sell" the home in northern CA, exchange for her friend's home, and then seek and acquire yet another home so that she does not have to pay capital gains tax at all.
She is looking to do this in order to find homes near her in southern CA so that they would be easier to maintain. Originally when she bought the northern CA home she thought she might move to northern CA to retire but she has since changed her mind and is looking to stay in southern CA.
Could anyone here tell me anything that I might have gotten wrong or other additional considerations? Thank you.