Selling and building in Boise Idaho

[Greg Betts]

Hello BP, looking for some advice.

I bought the 3bd/2ba house as a primary residence for my family in 2012. Last year 2020 we purchased another SFH and converted the 2012 home to a rental. After a year of renting to a great tenant, great cash flow, we are going to sell the property and build a duplex with the profits.

My questions...
Do I pay capital gains tax or am I exempt?
Do I pay income tax on the profit we make?
If yes, how would you organize the sale and development of a new property and give up losing money to taxes?

Thanks,

[Dave Foster]

@Greg Betts, only one thing to add to the wisdom already shared here.  Just in case your gain is more than $500K you can actually combine sec 121 with a 1031 exchange.  You've lived in the property 2 out the last 5.  And it is now currently being used as an investment property.  That would qualify you to take the tax free gain of sec 121 and defer the rest of the tax and depreciation recapture in a 1031.  Best of both worlds if you need it!!