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Updated 3 days ago on .
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Convert investment to primary
Hello,
We sold our primary residence mid 2024 and moved into our investment property that we acquired in 2020. The investment property was purchased through a 1031 exchange. I would like to get clarification as to whether we can sell our now primary residence without having to pay capital gains. And if we had to pay what amount or percentage would that be? We will have stayed there 2 years this coming June.
Some background information:
Primary residence purchased in 2018 for $1mil - Sold 06/2024 for $1.4mil. No taxes paid as under $500k cap.
Investment property purchased in 2020 via 1031 (relinquished property bought for $140k and sold for $330k)
Replacement bought for $750k + $100k remodel throughout
Moved into investment property 06/2024 until present.
As always, your expertise is much appreciated.
Most Popular Reply
Since the property was originally purchased through a 1031 exchange, to be eligible for the Section 121 exclusion, you must have owned and lived in the property for at least two out of the last five years as your primary residence. Since you moved in around mid-2023, you will have met the two-year residency requirement by mid-2025. Additionally, the IRS has a five-year ownership rule for properties acquired through a 1031 exchange, meaning you must own the property for at least five years before you can take advantage of the capital gains exclusion. Since you bought the property in 2020, you will meet this requirement sometime in 2025, depending on the exact purchase date. Therefore, if you wait until the five yearmark before selling, you should qualify for the Section 121 exclusion.
Note: This information is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.