Avoiding Capital Gains on Your Primary Residence- 1031-121 EXCHANGE

1031-121 EXCHANGE

Under Section 121, you can sell your primary residence and exclude from taxable income up to $250,000 (single taxpayers) or $500,000 (married taxpayers filing jointly) in capital gains

A 1031-121 exchange allows the owner of, for example, an expensive house to use one benefit to exclude part of the gain from tax and the other to defer tax on the rest. And the gain excluded -- up to $250,000 for a single homeowner and $500,000 for a couple -- can be added to the "basis" of the new house, reducing the potential tax if it is sold.

The new break doesn't apply to all homeowners, only to those who have home offices, or those who convert their house -- or a portion of it – into a rental. The deferral applies only to the portion of the house used for commercial purposes.  In general, you must use part of the home "exclusively and regularly" as your principal place of business, or exclusively and regularly as a place to meet or deal with patients, clients or customers in the normal course of work -- or for rental use. If you are an employee, your business use must be for your employer's convenience, not yours.

Next:  A 1031-121 Example 1031-121 Example

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Comments

[Chris]

I am cashing in some stock on a stock buy out. I am trying to take the net from that and put it into real estate. If I reinvest the profits from the stock into a rental property can I avoid capital gains?

[Cheryl Painter]

We bought our home for 252,000 last year and will be selling it for 370,000. Will we have to pay capital gains on the profit? It will not have been 2 years but it is longer than 1 year. We will be rolling the profit into another home in another state. This is not a job transfer.

[Mike Hedges]

We purchased our home for $285,000 and selling it for $405,000. We have been in the house now for 17 months so it has not been 2 years. We will be using some of the profit for some debt and the rest will be rolled into the new house. This is also not a job transfer. Will we be hit with a substantial Capital Gains Tax?

[red luck]

Hello. I have the following question. I sold three investment rentals, all houses and completed a 1031 exchange with the addition of 200.000 cash and bought a single house for 700,000. the 1031 privided the other 500,000. I then rented the new house for 2 years, then moved into it as my primary residence for 2 years. I am now going to move out and rent it for the last year to hold for a full five years. As stated we lived in it for 2 full years as our primary residence. At the end of the 5 years can I sell it and take the IRC121 500,000 deuduction (I'm married)?