1031 (or similar) selling rental for down payment on primary?

Question

Is there any tax strategy to not pay capital gains tax if I wanted to sell a rental house and use the equity to help with the down payment in a primary residence?

We're looking at a home that it more expensive than we'd typically think about, but if we sold our primary home and one of our rentals, we could pay it down substantially.

(Also, I assume the answer is no, but is there any similar strategy to sell a property and use those proceeds to pay down the mortgage on another investment property?)

In my limited experience I don't believe either is possible, but I'd hate to not ask and miss out.

Bill B. · Answer

Nope. You’d have to buy a rental that was more expensive than the one you sold to avoid paying taxes. Unless you’re open to buying a 2-4 unit, you could use the 1031 exchange towards any rental portion fo the building.

If you have the income you could simply do a refi on the rental.

Ron Todd · Answer

I've heard of people using the 1031 to sell a rental and buy the primary they want but instead of moving in immediately, they rent the primary out for a year or so. This works because you are exchanging a rental for a rental. It requires patience, but can work to avoid capital gains.

Dave Foster · Answer

@Joe Edwards-Hoff, @Ron Todd hit on the strategy but you've got to have some runway to make it happen. The 1031 is only for investment property so you would need to sell and buy property you intend to use for investment and then a year or two later convert it into your primary residence. Changing the use of the property does not create a taxable event. And as long as you own that property you move into you'll never pay the tax.

1031 (or similar) selling rental for down payment on primary?

1031 (or similar) selling rental for down payment on primary?

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