Tax Free Gains for Primary Residence (2 of 5 moving to 5 of 8)

9 Replies

Hi BP - Curious what others have done when faced with the deadline to sell under the current "2 of 5 year" rule and soon to be "5 of 8 year" rule in order to take gains tax free on a primary residence.

We own a very nice condo in Chicago in a very good neighborhood.  We bought at the bottom and the market has since gone a little crazy in Chicago and we now have a lot of equity should we choose to sell.  We use the condo for Airbnb (moved into a multi unit 1 year ago to make that our primary residence) and make solid cash flow on it.  We are mostly buy and hold investors and buy for cashflow.  

We do think there is extreme value in selling while we still meet the "5 of 8" criteria under the new proposed tax legislation.  Taking our gains tax free and then holding for another great opportunity to buy.  Anyone else thinking about this and what are some of the other factors impacting your decision?  I am leaning heavily towards selling and locking in those gains tax free...thoughts?

Just FYI the Conference Committee did not include the 5 or 8 rule so it may very well remain 2 of 5...we'll have to wait and see.

@Stefanie K. the reconciled bill released this week made no changes to the Sec 121 exclusion. If this bill passes, everything will stay the same regarding Sec 121. 

Originally posted by @Logan Allec :

Just FYI the Conference Committee did not include the 5 or 8 rule so it may very well remain 2 of 5...we'll have to wait and see.

Which is one of the more surprising aspects of the bill coming out of Conference Committee.  Both the House and Senate included it (the only disagreement was about an income limitation), so it seemed very likely that it would be in the final bill.  I wonder if they actually decided not to change it based on feedback they received, or if it was simply forgotten about in their haste to get the bill out of committee to meet their self-imposed deadlines.

Great to confirm!  In either case...curious what folks consider when deciding whether to sell to take tax free gains.  Luckily, we fit either model since we did live there for 5 years before moving...

have you looked into a 1031?

@Jay Helms   Yes, but why would I opt for a 1031 if I can take the gains tax free today?  The value of this Primary Residence rule is that there is so much more flexibility with simply getting all the gains.  I can then choose how much I want to leverage again to buy another property or diversify my investment portfolio with another portion of the gains.  

@Stefanie K. , One of my clients says that when it's time to redecorate it's time to sell!  If you like the appreciation and qualify for the exemption and want to move go for it.

Originally posted by @Brandon Hall :

@Stefanie K. the reconciled bill released this week made no changes to the Sec 121 exclusion. If this bill passes, everything will stay the same regarding Sec 121. 

 Great information!!  @Brandon Hall, are you aware of any updates regarding Sec 121?   We are very eager to find out if it stays at 2 years or changes to 5.

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