Selling Investment Properties to buy Primary Residence

Selling Investment Properties to buy Primary Residence

Philadelphia, PA · Member since 2016 · 3 posts · 3 votes

Hello All,

I am in the process of making a large move, and was hoping for some advice from the community.  I currently live in PA, and have 2 investment properties in other states..  One property I rent out as a vacation rental and am still making mortgage payments, and the otherproperty was a fix and flip that I own outright.

In a few months, I will be packing up and moving out west, and in an effort to boost my down payment and get a larger house for my growing family, I was planning on selling all three homes at once.

Logistics and timing notwithstanding, I was wondering what your thoughts were on the most tax effective way to do this.  It seems I cannot do a 1031 exchange on the rental property, so any gains (it looks like about 20% each  at the moment) made will be taxed as capital gains.  My primary residence has probably decreased by close to 10 % since purchase.  Is it possible to roll that together and reduce my total taxable

Am I making a mistake by selling?

Thank you in advance for your advice.

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    9y

    @Scott Anderson just wondering what made you think you cannot do a 1031 on the rental?  You could not use the 1031 to purchase your primary residence.  But I don't see why you couldn't use the proceeds for an investment property that you would later turn into your primary residence.  It all depends on the amount of gain you're talking about and timing whether it's worth it or not.

     The fix n flip would not qualify and that will be ordinary income.  The primary loss should offset capital gain elsewhere.

    The 1031 Investor5140 Reviews
  • Investor · Minneapolis, MN · Member since 2015 · 252 posts · 263 votes
    9y

    @Scott Anderson

    Is your vacation rental considered on taxes as secondary residence? If it is, and you lived there for 2 out of last 5 years, you will get partial exception from capital gains. You can do 1031 on duplex or larger and occupy one of the units, or as  @Dave Foster has mentioned, you can exchange everything for rental, and at some point convert it to your primary residence. Else, a dollar of your loss on primary residence will offset a dollar in gains on your investments. For taxes you are looking at 15% for long term capital gain ( if held for a year and a day) + 25% for depreciation recapture. Your flip - if you didn't have for a year and a day will be taxed at 30%. Are you making a mistake selling? One way to look at it is your after tax cash vs income. Say sale nets you 10k, but you get $750 a month income from your rentals. 750 will pay for about 120k mortgage there 10k will pay for 10k mortgage. In this case I would not sell. But if you get $200 a month in income vs 70k cash - sell. Good luck.

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