1031 Exchange: Sell Property Then Keep For A Year
If I do a 1031 exchange on a house I've had as a rental for a year, then buy another house keep it for a year and sell with out the 1031 exchange; would I just pay regular long term capitol gains?
You are not clear on where you will live in the house you are buying or not.
Never the less, If I understand you clearly, you are trying to avoid the capital gains that you deferred from the first 1031 deferred exchange.
I just finished running the scenario with my accountant. The is that you will still be liable for the gains you deferred on the 1031. Then argue that you the appreciation on your new home is not taxable because it is you primary residence, now the rule is that you must reside in the property for a minimum of 2 years. There are exceptions, which go to the www.irs.gov and you will find it.
I have seen in cases where the irs doesn't even catch it.
Ps I am not an accountant and this is not advise. I am only sharing information, but (here go my disclosure), you should consult with your tax advisor or CPA to get information on your specific case.
I will not live in the house.
So I guess after I sold the second house with out a 1031 I would just pay long term capital gains on the gain from both houses. correct?
Thanks for the response.
The short answer is yes, you taxable gain will include the profit on both properties.
The longer answer is a little more complicated, but the end result is the same. When you do an exchange, the basis of the relinquished property becomes the basis of the replacement property. Add to your basis, any additional money (or debt) that you contributed to the replacement property purchase.
Now, when you sell this replacement property outright, your profit on the sale of this property already includes the deferred profit on the sale of your former relinquished property.