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Selling house less than 2 years after purchase - any way to avoid tax

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  • StarTrekDoc
    replied
    Originally posted by White.Beard.Doc View Post
    There is no hard and fast rule on how long a property must be held to qualify for a 1031 exchange.

    Here is a list of factors considered by the IRS when deciding whether to allow a 1031 exchange:
    1. The purpose for which the property was acquired.
    2. The purpose for which the property was subsequently held.
    3. The extent of improvements made.
    4. The frequency, number, and continuity of sales.
    5. The extent and nature of transaction in the property.
    6. The ordinary or general business of the taxpayer.
    7. The extent of advertising and promotion for sale.
    8. Whether the property was listed with a property broker or other outlets.
    9. The purpose for which the property was held at the time of sale, as apposed to the time of acquisition.
    You would likely need to convert the property into a bonafide rental business, perhaps for at least a year, before selling it in a 1031 exchange. And then what would you buy to replace it? Do you want to be a long term real estate investor? 1031 exchanges work best when the real estate investments are kept for life, and then passed on to heirs at a stepped up basis at death, wiping out all the capital gains and wiping out depreciation recapture.
    AKA - our beach house family retreat/retirement plan for those rentals when the time comes.

    Leave a comment:


  • White.Beard.Doc
    replied
    There is no hard and fast rule on how long a property must be held to qualify for a 1031 exchange.

    Here is a list of factors considered by the IRS when deciding whether to allow a 1031 exchange:
    1. The purpose for which the property was acquired.
    2. The purpose for which the property was subsequently held.
    3. The extent of improvements made.
    4. The frequency, number, and continuity of sales.
    5. The extent and nature of transaction in the property.
    6. The ordinary or general business of the taxpayer.
    7. The extent of advertising and promotion for sale.
    8. Whether the property was listed with a property broker or other outlets.
    9. The purpose for which the property was held at the time of sale, as apposed to the time of acquisition.
    You would likely need to convert the property into a bonafide rental business, perhaps for at least a year, before selling it in a 1031 exchange. And then what would you buy to replace it? Do you want to be a long term real estate investor? 1031 exchanges work best when the real estate investments are kept for life, and then passed on to heirs at a stepped up basis at death, wiping out all the capital gains and wiping out depreciation recapture.

    Leave a comment:


  • pierre
    replied
    I don’t see how renting helps in your situation. How short of two years are you?

    Leave a comment:


  • Selling house less than 2 years after purchase - any way to avoid tax


    We will be selling our primary residency - likely for a substantial gain - before we've hit the 2 year mark.
    I can't envision any way (1031 exchange for example) to avoid taxation on the gains without first having a period of time when it's a rental. We'd rather not do that for other reasons.

    If for some reason, we did decide to rent, how long would we need to rent, to qualify?

    ​​​​​​​Thanks!

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