Time to sell?

[Jonah Slove]

My fiancé owes a small 2bed 2bath townhouse outright. It was her primary with a roommate until she moved in with me, now it is rented fully. It is valued at $1.3mil and she bought for $550k 5 years ago so not a bad return at all. Currently she only rents it for $2500mo because affordable housing is an issue in our small town..also STR is not allowed per the town. Now we are considering selling it to buy a more cash flowing property. Maybe some MFR in a bigger town an hour away. We would 1031. Pros and cons to this idea?

[Dave Foster]

@Jonah Slove, She will be the only person eligible for the primary residence deduction.  In order for you to qualify you would have had to have lived in it also for 2 out of the 5 years prior to sale.  Marriage ultimately doesn't really have that much to do with the qualifying other than establishing residency and what tax return the property is reported on.  It is your use.

But....  there is a great opportunity here.  She will only get $250K of profit tax-free.  But because it is also an investment property right now she can also 1031 the remainder.  

 $250K tax-free.  and defer the rest of the tax in a 1031 exchange.