Capital Gains exclusion or 1031 exchange?

[Nicholas O'Kelly]

I'm in the military and bought a house in TN in January 2019 (2.5 years ago). In August of 2019, I received orders to move, so I only ended up living in the house for about 9 months. We rented the house out and will not be moving back to that location, so we will not ever live in residence for the 2 years required to be exempt from capital gains. We are now selling the house, and I want to reinvest over half of the gains into another rental property (or two). I make about $75K/year and will probably end up with around $70K after closing costs on the house.

My question is two parts, do I need to do a 1031, or is there another tax exclusion since I would never meet the residence exemption due to the military moving me? 

If I do need a 1031 exchange, can I do that for only part of the gains?

Thanks all.

[Dave Foster]

@Nicholas O'Kelly, It depends on the amount of gain.  You should qualify for an exemption to the primary residence exclusion which would let you prorate the amount of gain you get tax free according to the amount of time you actually lived there.  So you should qualify for 9/24ths of the gain to be tax free up to the $250K/$500K limit.

If you find that there is more gain than that and you would like to defer it then you would do a 1031 exchange as well.  So you will get to defer some tax and get some gain tax free.  You're actually in a pretty good situation.