Trying to understand tax situation, would love perspective

[Justin Skinner]

Hello!

I am relocating to another state for a new job and am trying to decide if I want to sell my home and re-invest in something up here.  Some final facts I need to make a decision are the tax implications, any help here would be most appreciated!  Below is all necessary information:

Current Home (California):

• Single family home, currently we live in the our guest house and rent out our main house.
• Main house:  2800 sq ft  (renting for $4000/mo)
• Guest house: 480 sq ft
• Purchase price: $1,000,000
• Put $100,000 down, did a 80:10:10 loan, so $900k remaining in loans. 
• Purchase date:  October 1st, 2015
• Estimated sale price: $1,350,000
• Estimated sale date: July 1st, 2017

Potential New Home (Oregon):

• Single family home, looking to convert the basement that has its own entrance into an additional unit for rent. (we would move into the additional smaller unit if it helps for tax reasons).
• Main house: 3100 sq ft
• Basement unit 700 sq ft
• Purchase Price $1,450,000
• Down payment: $400k - $500k depending on what we sell our California home for.

If there is any additional information required let me know!

- J

[Natalie Kolodij]

@Justin Skinner 

Just like with a duplex when someone owner occupies you can utilize a 1031 for the portion of this property that you've allocated as a rental....BUT the trick here is that your new property would also need to be a duplex/ multi dwelling so that you'd have a partial rental property to 1031 into. It couldn't just be into your primary home. 

My guess is the issue you will run into is you need to purchase something equal or greater in value, and going from California to Oregon this may be tricky. 

However...85% of this property is investment use and could qualify for a 1031 exchange. 

The other 15% is primary and although you haven't lived there two years- you're relocating for work purposes which is one of the exemptions to the two year rule. 

If you sold without utilizing a 1031 strategy you could qualify for a partial exemption on gain even though you haven't lived there 2/5 years. You would have 25% deprecaition recapture on the gain on the rental portion. 

I think you could potentially sell/move with almost no tax implication

@Dave Foster @Steven Hamilton II care to chime in?