1031 Exchange > Primary

[Navdeep Raj]

1) If you own an investment property, with 1031 Exchange I can sell the investment property and buy a like-kind property and defer capital gain taxes. Correct?

2) If you own an investment property in Texas, and if anytime in the last 5yrs of the sale if that property you lived in the property, you don't pay any capital gain taxes. Correct?

1+2) If you own an investment property, with 1031 Exchange I sell that property, use that funds to invest in a like-kind property and at some point I live in that new property for 2 years and then sell that second property, will I pay capital gains taxes?

[Dave Foster]

@Navdeep Raj

1. Correct (remember like kind simply means any type of investment real estate)

2. Maybe- if the residency happened first then yes up to the limits of $250k profit for a single taxpayer and $500k I’d married.  If it was a rental that you then moved into see #3

3.  Not quite.  When you convert an investment property to your primary residence you only get to prorate the gain between “qualified use” (as your primary and tax free) and non qualified use (as investment and taxed). And you have to recapture depreciation.

When you do this with a property that was once a 1031 property then you have the additional requirement of owning it for at least 5 years.