1031 exchange question

[Vrushali Raikundalia]

Hi, I am looking to do a 1031 exchange with my rental to save on capital gains taxes. My understanding is that it will just defer the taxes. Are there any other strategies that will help me avoid the taxes or reduce them. Like for eg., if I make it my primary residence instead. Looking to get information on all possible options

[Dave Foster]

@Vrushali Raikundalia, I think what you are referring to is the 121 exclusion, which allows you to take the first $250k ($500k if married) of the gain tax-free as long as you've lived in the property for two out of the previous five years as your primary residence.

However, if you converted the property to your primary residence and qualified for the exclusion when you sold the property, you wouldn't get the full exclusion; you would get a proration between the number of years it was held as a rental and as your primary residence.