Capital Gains Sell Rental to Pay Primary Residence Mortgage

[Larry Johnston]

Capital Gains Question

In the next year or two my wife and I and planning to move to the Dominican Republic. 

We own 3 properties here in USA

Property #1 Rental owned free and clear, Valued at $250,000.00 with $125,000.00 capital gain if sold.

Property #2 Rental owned free and clear Valued at $300,000.00 with $100,000.00 capital gain if sold.

Property #3  Primary Residence Valued at $400,000.00 with a mortgage balance of $225,000.00

Essentially rent from Property #1 pays mortgage of #3

We would like to only have 2 rentals when we move...easier to manage.  We would also prefer NOT to sell the Primary Residence as we would want to move back into it in 5 to 10 years.

Can I sell Property # 1 and use the proceeds to payoff Property #3 mortgage and then convert #3 in to a rental with out paying capital gains...or at least defer those gains.  Ideally I would like to move back in to Property #3 as my Primary Residence and avoid any tax at all as we never plan to sell #3 and leave it to our daughter.  I have read you can roll proceeds from one investment in to another with out Captial Gain.  Rather sure this is not possible .

Probably a better question for a CPA....but I thought I would see if anyone here knows.  

Thanks,

Larry

[Dave Foster]

@Larry Johnston, to piggy back on what @Ashish Acharya said, the 1031 can't be used to pay down a mortgage on property you own.  It must be used to purchase new investment real estate.

Property 2 is the one to sell if you're going to.  It will free up the greatest amount of cash with the lowest cap gain.  Looks like you could pay off the mortgage on your primary and pay the tax and still put around $50 - $60K in your pocket.

If you couple that with rent income from the rental while you're in the DR you will come out pretty good.