@Dave Foster, @Chris Brown I really appreciate your posts. Dave, I spent some additional time this weekend combing through all of your responses to other people's questions, so a double thanks. I have a better understanding now, and I agree that the tax exclusion on the current primary makes for a better strategy to utilize the entirety of the tax benefit.
For kicks, does the following qualified use calculation work as follows:
Purchased - 2004
Lived in until 2007, converted to rental. *Tax law drew a line stating years prior to 2009 are considered qualified use, right?
Hypothetically do a 1031 exchange in 2019
Rent newly acquired property for 2 years (it's now 2021)
Move into newly acquired property for 3 years (it's now 2024)
2004-2008: 5 years qualified use
2009-2019: 11 years rented
2019-2021: 2 years renting (post 1031 exchange)
2022-2024: 3 years used as primary
Does the prorating calculation go back to 2004 like this:
8 years total qualified use of a total 21 years, 8/21= 38% allowed exclusion on gain (limits apply with 500k married exclusion limit)
Or does the prorating calculation "reset" to the date of the 1031:
3 years qualified use of a total 5 years, 3/5= 60%
Say its $400k gain since 2004, so .38*400,000 = 152,000 sheltered. Capital gains tax paid on remaining 248k.
or... $400k *.60 = 240k sheltered, Capital gains tax paid on the remaining 160K.
I get it that the longer you stay in the house as a primary, the percentage increases in either case.
