Capital Gains - Best ways to reduce

[Dan Stelmach]

Hi There,

This is my first post so thank you to anyone that can provide feedback!

I recently bought my first residential property (a condo) in the burbs just north of Chicago. I bought it off market at a great deal with a conventional mortgage as a primary residence with the plans to rent it after the 12 month period has passed so I can legally rent it. I purchased the unit for 250K and I put about 25K into the place.

The rents in the area for these type of units go for around 3K, maybe a bit more, leaving me about $400+ a month in profit after the mortgage and HOA. This isn't including other expenses I know but I was planning to self manage the property and hope rates continue to go down so I could refi in the future and gain more margin in rental income.

After further analysis and speaking with a friend thats a real estate agent I may want to shift my original plan and sell it. They shared I could easily sell this unit for 400K+ leaving a sizable gain in the short term.

That being said I would face some significant capital gains and I was wondering if I had any options to avoid these. So I had a few questions to see if any of you had a similar experience and what you all have done/learned.

First, besides what I put into the unit (25K) is there anything else I can write off?

Is there a way to put this into a 1031 if its considered my Primary residence? Even if I 1031into an actual investment property?

Would you still hold if you had such a sizable opportunity? I feel the value of this condo is at its peak considering the market.

Are there any legal exceptions for the 121 home sales exclusion if I buy another primary residence shortly after the sale to avoid tax? I'ved owned this property for 6 months.

Am I missing anything here?

Thanks!

Dan

[Dave Foster]

@Dan Stelmach, You can't 1031 your primary residence.  You could convert it into an investment property and then use it for investment for a year and then sell and 1031.  That would work.

But, if you've already invested a year in that as a primary residence then why not stay there one more year and take the gain tax free under sec 121 the primary residence exclusion.  Yes it takes another year.  But tax free is a pretty strong motivator.

Tax free if your primary.  Indefinitely tax deferred if you decide to use it as an investment.  Either way works pretty well.