Tax deferred transaction between personal and investment property

[Michael Wolffs]

I own a personal residence with A LOT of equity.  I'm single, so if I sell it I can avoid tax on $250K of cap gains, but there would be significantly more than that.  If I sell the property, and roll the proceeds into a large mulitfamily that would cost more than the gross sales amount of the residence and absorb all the cash coming out the sale, can I defer the entire tax liability of the sale?  Would it matter if I subsequently lived in the new property or not?  If allowed, would this be considered 1031 exchange and have to be performed under the 1031 rules?

Any information appreciated.  Thanks.

[Dave Foster]

@Michael Wolffs, Aw, don't give up so easy!  There is a way to combine the two but it takes a little patience.  Sec 121 deals with your primary residence.  Sell a property you've lived in for 2 out of the 5 years prior to sale (beware there is a change in the works to make this 5 out of 8) and you get to take the first $250K of gain (if single) tax free.

Sec 1031 is for investment property.  Sell a piece of property that you hold for investment purposes and you can do a 1031 exchange and buy new investment property and defer payment of the tax indefinitely.

If your were to move out for a year or two and rent it that converts the property from your primary residence and into an investment property.  At that point you can do a 1031 exchange and you would also get the $250K tax free because even though it is currently investment property you still qualify for sec 121 by meeting the residency requirement.  The only tax you would owe would be the depreciation recapture during the time it was a rental.

A little patience can go a long way.  The only joker in the deck is the amount of patience it will take given the status of the new tax reform bill.