With your primary residence can you avoid the capital gain tax if you have lived in it for less than two years? Would you be able to do something like a 1031exchange but instead of business or rental property it would be on a primary residence? I have been in my house for one year and may need to move in the next year for a work promotion? Optimally if i can i would like to refinance my residence into a 15 year fixed and turn it into a rental and then purchase my primary residence. Like anyone else I would like to tray and avoid paying my capital gains tax. Any suggestions?
@ Cada Schacher
I believe that you would need to meet the two-year threshold. Having lived in the property for one year how much equity did would you actually build? Unless you completed some major rehab and/or expansion the appreciation should be 10% or less and when you account for the costs of sale (realtor fee, closing costs, etc.) you may just break even. If you did show capital gains the taxes on it should be minimal (I think it is 20% in the asset was held less than a year and 15% if it was held over a year in most cases).
It sounds like you are considering turning the property into a rental, this might be the better route. You may qualify for the best mortgage terms and build further equity into that rental.
@Cade Schacher , There are a couple of exemptions for the two residence mark. If you had to move for job related or medical reasons you can prorate the time you were in residence. So your scenario might fit. Your accountant will make the call.
But other than that you can't 1031. The 1031 is only for investment real estate. However turning that into a rental and a refi would certainly be fine. Then later when you sell that property it would qualify for a 1031 exchange.
If you have to move due to a work promotion, you will be eligible for a partial exemption, which may be enough to avoid the entire capital gain.
@Ray Johnson , there's no statutory period. Only what is necessary for him to demonstrate his intent. Most folks feel pretty good at anything over a year. But in every situation there are circumstances where a shorter (or longer) holding period might be appropriate.