Primary Residence / Capital Gains Questions

[Ryan Kinsella]

Hello Everyone,

I have a friend selling his primary residence a little sooner than anticipated and wondered if anyone had come across capital gain tax issues in the past.  Here are the facts:

- Closing date for current primary is end of May and will be a total of 22 months lived in and owned.

- Purchase price was $525k

- Sale $1,025,000

- Improvements- I think he could come up with $350k or so.  Complete gut plus added pool/ect.

- Paying 6% closing costs

- New primary residence he is purchasing will be closing same day at $1,150,000

Thoughts/ Ideas?

[Dave Foster]

@Jay Baker, the 1031 exchange is only available for investment property.  your primary residence falls under sec 121 and as @Christopher Phillips said in order to qualify you must have lived in the property for 2 out of the 5 years prior to selling.  @Ryan Kinsella, the only way your friend can avoid capital gains on this sale is if he qualifies for one of a very few exceptions to the residency requirement such as a job transfer or medically related reason.  Or, he could do a 1031 but only if he moved out and converted it into an investment property and held for a bit of time.

I'd calculate the potential tax and maybe offer an incentive for a 60 day delayed closing on the two properties.