Section 1031 deals have strict guidelines
Question: When you sell a duplex where you live in one unit and the other unit is a rental, do you have to do a 1031 tax-deferred exchange or would part of the duplex be classified as a personal residence?
Answer: The short answer is “yes.” Under tax law, you may sell your principal residence and keep any profits up to $250,000 per person ($500,000 for a married couple) tax-free. No longer do you have to buy a replacement home of equal or greater value to avoid paying capital gains tax. But investment property owners are still subject to the capital gains tax on their property sale profits – unless they exchange the funds into another investment property.