USCTrojanCPA said:
Dr. CA Real Estate said:
Surprised no one has brought up that a 1031 exchange should be done to begin with to avoid any capital gains
Primary residences and second homes are not eligible for 1031 exchange treatment, only rental properties are. You can convert your primary residence or second home into a rental property for 1 year and then do a 1031 exchange but why do that when you have the $250k/$500k gain exemption. Exemption from tax from gains > deferral of tax gains
Technically he could get both the $250k exclusion and a deferral for any gain over the $250k by doing a 1031 exchange. The tax code allows you to pile these two benefits together. Mechanics are tricky though and likely not what the OP is trying to accomplish. To do it he would need to do the following:
1) Live in the house for at least 2 of the last 5 years as his personal residence. This allows for $250k in gain to be wiped out
2) Convert the house to a rental or business property and have it sit that way for at least two years. This allows for a 1031 exchange deferring the gain
3) Purchase a like kind rental/business property. This property needs to be of equal or greater value and you must close on the purchase within 180 days of selling the original
Here's a good piece that explains how to utilize both of these treatments in one transaction:
https://www.bradyware.com/combine-home-sale-gain-exclusion-with-like-kind-exchange/