Should I move back into this house before selling it or 1031?

Question

Goal:

Get money out of this house without paying capital gains taxes or having to do another 1031 exchange like I did on another house a year ago.

Background:

-I bought the single family home in mid August 2014.

-I lived in the house through February 2016. Basically I lived there for 1.5  years.

-I rented it out from March 2016 until present. In March 2019 it will have been a rental for 3 years.

One option:

I’m debating giving the tenants notice before the 5 year ownership mark and moving back into it before selling it, or converting it into a vacation home 6 months before selling it so I can get the money out without capital gains taxes. With the pending slow down, etc. I am hesitant to do another 1031 exchange.

Thoughts?

Jack B. · Answer

Dough! I just realized that 1031 exchange is my only real option, as I already had a primary residence exclusion within the last two years when I go to sell this house.

What I MIGHT do is cash out refinance some money out instead.

Jack B. · Answer

Yeah, I may just do that. I just hate moving as I've moved every year and a half and I just moved into a former rental four months ago. I may just bite the bullet and do it.

I moved out of this house after being hospitalized with a life threatening illness. I only moved a few cities over into a different house, wondering if it was an environmental factor that was causing my issue (for which I had been hospitalized before). To date not a single Doctor or medical test has been able to find the cause of my issue.

Wayne Brooks · Answer

You won’t get the full exclusion I don’t believe,  you’ll have qualified use calculations since you didn’t meet your two years requirement until After it was a rental. You’ll only get a little over a 40%  (2 out of 4.5 years) exclusion, assuming it was rented for 2.5 years and you lived in it for 2.

Verify this with your cpa.

Natalie Kolodij · Answer

@Jack B. Since you're so close to the 24 month mark I would try to utilize it as a primary home for a few months so you could sell fully tax free.

Did you move due to work, medical, or an other pressing reason?

If so, you may qualify for a partial exclusion which would allow you to sell it for 75% tax free since you already occupied it for about 1.5/2 years.