Question about 1031 investment property

[Cameron Robert Mozzochi]

I’m just trying to learn about real estate investing and would like to make some money doing it eventually. I keep hearing about people saying you can do a 1031 on a investment property if you live there for 2 years and sell it and keep all capital gains. My question is do you have to pay off the mortgage on that property when you do that. Or would it even make sense not to pay it off first before selling? And what do they qualify as a investment property, how do they know it’s a investment? Sorry if that’s a dumb question I just don’t understand that.

[Dave Foster]

@Cameron Robert Mozzochi, Your mixing a couple statutes.  Sec 1031 exchanges allow you to sell investment real estate and purchase new investment real estate while getting to indefinitely defer paying taxes normally due on the sale.

Sec 121 allows you to sell a property you own and have lived in for 2 out of the 5 years to sell and take the first $250K ($500K if married) of profit tax free.  That's profit not proceeds.  And it's tax free while the 1031 is tax deferred.

Both of these can have a very important place in your business model.

In any case, a mortgage will always be paid off when you sell a property - otherwise the buyer can't get a clean title.