Tax implications with rehab

[Steven Skarupa]

Our primary resident is a bit of a dog. We bought in 2007 and it wasn't until just a couple years ago that we emerged from being underwater. I'm about to jump into REI looking to at using BRRRR and/or classic buy and hold strategies to build a portfolio. But my primary is a drag on most of my plans. It's too big and because of the loan and insane local taxes it won't get me a positive cash flow. Oh, and my son is still in high school so we need to stay in the district until he finishes (2 years).

I found a foreclosure in the district at a great price with numbers that easily get us to positive cash flow. The plan would be to buy the house, renovate it, move in as our new primary and then put the dog up for sale. When it sells, based on current market we should be able to pay off the mortgage and walk away with 40 -50k in cash.

Since the amount of profit is well lower than the 500k bar, would we avoid cap gains? I was thinking to drop that back into a new brrr deal.