Turning 1 primary and 1 rental into 1 primary

[Yoon Chong]

I'm looking to sell two properties, one primary and one rental, and use the profits to pay cash for a new primary. I'm wondering if there are some strategies to minimize my capital gains tax burden. Here's the situation:Primary home: purchased for $350k; can probably sell for $750k; owe about $50k on the mortgage. So, I'll have a $350k capital gain, minus the $250k for it being my primary for a few years. Owned for about 8 years.Rental Home: fully paid off, purchased for $200k; can probably sell for $450k. $250k capital gain. Have owned it for 10 years.The home I'm looking to buy will essentially utilize all the cash I will have after these two sales. I don't want to take out a loan. My concern is the capital gain tax burden I will face after the sale of both. Are there any strategies that I should consider to minimize the tax burden? Is it possible to use a 1031 Exchange on the rental and put it towards a primary? I know it's meant for investment properties. However, how will they know whether or not the new property is my primary or investment?

[Bill B.]

You didn’t post enough info but…

You can not do a 1031 exchange from a rental in to primary, you are correct about that. The only way to pull it off would be to buy a duplex or something with 2 living spaces where the rental portion is worth more than the rental you’re selling. That would save you taxes on your rental but not your primary sale. 

To avoid all taxes on the rental you’d have to buy something that costs more than the $450k sales price minus any selling costs. 

If you sell your primary for $750k and paid $350k, you’ll have a $400k capital gain minus $250k you don’t get to subtract $50k because you have a mortgage on it  otherwise everyone would go out and get a huge mortgage before selling.

I assume the primary home wasn’t a rental for you first, otherwise you’ll owe even more taxes as you only get a portion tax free  

You forgot to put your location in your profile but if you live in a state with income tax don’t forget to tack that in too.