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Posted
1 minute ago, Surly Bevo said:

I mean he could not report it and not pay and roll the dice that the IRS is so gutted they won’t notice

You will get a 1099-s on the proceeds from the sale of a home... so don't do that.

 

Back to the 1031 topic.  If you have the wherewithal and time you can make the primary residence a "rental" and then 1031 exchange it.  Articles on the topic suggest a two year timeline.  No idea how much the IRS will care about your effectiveness at renting the property over that timeline.

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Posted
On 5/8/2025 at 8:33 AM, Im_smarter_then_you said:

Is there a way of not paying cap gains tax after selling a house?

I wish I knew when I was young about the 2 out of the last 5 year Homestead cap gain exclusion.  Buy a fixer upper, fix it, refi to get cash back out, then rent it.  Move into new homestead, that you remodel.  Then sell first place, before, and refi the newly improved homestead.  The 5 year clock starts ticking again on the second homestead.  BUT you can only take the exemption once every 5 years.  

Where else can a married couple pick up that sort of tax free income?  No place.

But past $500,000 you are paying cap gains.  Unless you roll all the non-excluded gain into a new homestead. Then there is no gain since that gain got rolled into the new homestead.

 

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Posted
28 minutes ago, horn4life said:

I wish I knew when I was young about the 2 out of the last 5 year Homestead cap gain exclusion.  Buy a fixer upper, fix it, refi to get cash back out, then rent it.  Move into new homestead, that you remodel.  Then sell first place, before, and refi the newly improved homestead.  The 5 year clock starts ticking again on the second homestead.  BUT you can only take the exemption once every 5 years.  

Where else can a married couple pick up that sort of tax free income?  No place.

But past $500,000 you are paying cap gains.  Unless you roll all the non-excluded gain into a new homestead. Then there is no gain since that gain got rolled into the new homestead.

 

The end of this is incorrect.  You pay capital gains on the excess difference being the exclusion amount.

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Posted
5 hours ago, Hefeweizen said:

The end of this is incorrect.  You pay capital gains on the excess difference being the exclusion amount.

So if I buy my homestead for $500K and via appreciation it becomes worth $1.2 million. I cannot then sell the place for $1.2 million, buy a new homestead for $700K million and pocket the $500K exclusion? 

I thought as long as you put the rest of the gain back into your homestead, you could defer tax on that gain?

 

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Posted
50 minutes ago, horn4life said:

So if I buy my homestead for $500K and via appreciation it becomes worth $1.2 million. I cannot then sell the place for $1.2 million, buy a new homestead for $700K million and pocket the $500K exclusion? 

I thought as long as you put the rest of the gain back into your homestead, you could defer tax on that gain?

 

You would owe capital gains on the difference minus qualified improvements you made to the property while you owned it.  This is where it can get a little fucky since regular maintenance doesn’t count.  So a new pool, remodel, etc probably qualify but fixing things doesn’t.

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Posted
13 hours ago, Hefeweizen said:

You would owe capital gains on the difference minus qualified improvements you made to the property while you owned it.  This is where it can get a little fucky since regular maintenance doesn’t count.  So a new pool, remodel, etc probably qualify but fixing things doesn’t.

Ok I stand corrected.  I thought if you bought a homestead of equal or great value you could defer all the gain.  I guess I wasn't contemplating exceeding the $500K cap when I actually thought about this a few years back.   

So the exclusion is the 121 Exclusion. According to Rocket I can use this every two years?  This would be important to me, because if I were to talk the wife into making a homestead move, It would be to convert our current homestead into an income producing property, while I remodeled a new homestead.  

This is the scenario I am considering trying to pull off.  I have a neighbor whose parents home has been vacant for a couple years.  Full of Christmas hoarding crap.  But she is needing to get some cash finally, and the property is in trust, and I was nervous about trying to buy the property from a trust.  Mainly as I was going to give her almost nothing down, with a future balloon payment.  Or interest only loan to keep my costs down by renovating. 

In this scenario I could convert my current homestead into a rental, thus opening the door for a future 1031 exchange.  In this scenario my wife and I (filing jointly) could Sell the property (within the 2 or 5 years homestead 121 limitation) and take $500K cash out tax free, and defer any additional gain beyond that amount into a new investment property using the 1031 exchange.  In essence converting the homestead residual cap gains into rental property equity, correct?

HOWEVER - I thought I was limited in taking the 121 cap gain exclusion to once every 5 years?  Rocket is saying once every two years?  

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Posted

I think you need to consult with a tax advisor.  I don’t know much about 1031 exchanges but everyone I know who has used them used an expert to guide them.  I believe for the capital gains exclusion you have to resided in the home for a minimum of 2 years within the past five years, but that’s recollection.

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Posted
2 hours ago, tbone_ said:

The tax law used to be that if you reinvested your gain in a house of equal or greater value you didn’t have to pay tax on the gain. But that changed a long time ago.

It's because I remember shit, and I'm old...I guess I thought the $250/500K was in addition!  But much better to have the flexibility to make multiple homestead sales and convert some of that gain into tax free cash.  

But if you are young and willing to move around a couple times, and are handy remodeling, it's a great way to grow your net worth!  Especially if you start off with this as a strategy.  I was explaining this to a roofing guy who was young and explaining that hell he already had connections for the most expensive part of many remodels, a roof!  And just knowing folks that can help you build shit can help turn that sweat equity into real equity.  

Looks like you might be able to take the deduction technically every 2 years + 1 day?  Assuming closing on sale and purchase of homesteads at same time.

But what is also interesting to me is that 5 year window.  It opens up the ability to move to a new homestead and convert your existing homestead into a rental unit to benefit from more years of appreciation.  While at the same time remodeling your new homestead.  The we get the mortgage finance folks in on the game.  And then you are using your homestead in combination with a BRRR strategy.  

 

Posted
On 5/10/2025 at 9:11 AM, tbone_ said:

The tax law used to be that if you reinvested your gain in a house of equal or greater value you didn’t have to pay tax on the gain. But that changed a long time ago.

the "rollover residence replacement" rule.

Posted
7 hours ago, Gil Bang said:

the "rollover residence replacement" rule.

And it ended almost 30 years ago. It's amazing how things get ingrained in people's memories. 

Posted
On 5/9/2025 at 4:11 PM, horn4life said:

So if I buy my homestead for $500K and via appreciation it becomes worth $1.2 million. I cannot then sell the place for $1.2 million, buy a new homestead for $700K million and pocket the $500K exclusion? 

I thought as long as you put the rest of the gain back into your homestead, you could defer tax on that gain?

 

Where are you trying to buy a house that costs $700k million?

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