$1,000,000 net on primary residence, How do I avoid the tax?

[Cody Wilhite]

I have a family member who is moving to a new primary residence and is set to close in a few weeks. He does not need any proceeds from the current home to make the purchase. After several months of improvements to the current home, he plans to put it on the market and will net $1,000,000 profit upon the sale. How can he avoid the $150,000 tax on his capital gain? Is there a loophole in the “1031 exchange” rules or some other option to consider? I would love some advice from a tax expert or real estate mastermind.

[Dave Foster]

@Cody Wilhite, it's not a loophole but if he can exercise some patience he can take $500K of profit tax free and 1031 the remaining profit into new real estate thus eliminating the tax totally through a mix of tax deferred 1031 treatment and sec 121 primary residence sale.

He needs to be willing to hold on to it as an investment for a year or so and then sell.  He will still qualify for the $500K of gain tax free (if he's married).  And he can then 1031 the remainder into another investment property.  His only tax bill would be the depreciation recapture on the time it was held as investment.