Sell or hold? Sec 121 exemption window closing soon!

[Michael John]

Two-family home in HCOL area worth $1M

$500K owed on mortgage

$3500/mo PITI

$6000/mo rental income

Have opportunity to sell now; unit 1 would be exempt from capital gains tax via sec 121 exemption (lived in 2 of last 5 years)

Would 1031 exchange profits from unit 2 into new investment property (anticipating $500K range with ~$3K in rental income)

Would also consider buying a new primary residence and renting out current property, which could get about $3K monthly rent

If I sell now, I could save upwards of $50K in taxes. House is about 10 years old and expenses & maintenance costs will likely start to ramp up in the coming years.

Market is hot now but who knows what covid could do. Property is in a metropolitan commuter area.

Cashout refi is not an option as rates are close to 4% plus 1.5 points since it's an investment, and max LTV is only 70%

Your wisdom is welcome!

[Dave Foster]

@Michael John, I'm a huge believer in taking every tax free dollar off the table you can at every opportunity.  Tax defer the rest.  You've got the opportunity and the experience to sell this property and repeat.  Take the tax free primary exemption and put the cash anywhere.  Do a 1031 on the investment side  (approx 500K) and buy a $ 2 mil 4 family.  Since you only have to reinvest the $500K (purchase at least as much as you sell) you can immediately move into one of the 4 units and voila!  You've got your next primary residence and 3 cash flowing units and cash in your pocket all without paying a penny in income tax, capital gains tax or depreciation recapture.  

A golden opportunity for you.