Capital Gains - Investment > Primary

[Navdeep Raj]

I'm in the process of purchasing an investment property in Austin, TX. Without lot of research I assumed if I lived in the property for 2yrs in the last 5yrs of the sale, I could be eligible for the exemption so I don't pay any capital gains up to 500k (I'm married). 

Based on another thread, looks like its not the case :( Other than the "qualified use" time in the property, looks like the rest of it is all taxed? I'm wondering if there are other options to avoid capital gains (other than the 1031 exchange).

First question is what defines if a property is investment or primary? The loan type? 

Let's say I rented the property for 3yrs, moved in and re-financed as a primary and lived in it for 2yrs. Will I still pay capital gains for the first 3yrs? What if it was an investment for 5yrs, then I re-fi as primary and lived in it for 3yrs?

Right now the property is just in my name. Is it a stupid idea to "sell" the property to my wife as a primary right after I purchase, then live in it for 2yrs and then rent it out for 3yrs?

Why do people who buy as primary, live for 2yrs then rent for 3yrs get all 5yrs tax exempt! vs starting out as an investment and then deciding to make it a primary so expensive?

Thx for any inputs :) 

[Ashish Acharya]

Originally posted by @Navdeep Raj:

I'm in the process of purchasing an investment property in Austin, TX. Without lot of research I assumed if I lived in the property for 2yrs in the last 5yrs of the sale, I could be eligible for the exemption so I don't pay any capital gains up to 500k (I'm married). 

Based on another thread, looks like its not the case :( Other than the "qualified use" time in the property, looks like the rest of it is all taxed? I'm wondering if there are other options to avoid capital gains (other than the 1031 exchange).

First question is what defines if a property is investment or primary? The loan type? 

Let's say I rented the property for 3yrs, moved in and re-financed as a primary and lived in it for 2yrs. Will I still pay capital gains for the first 3yrs? What if it was an investment for 5yrs, then I re-fi as primary and lived in it for 3yrs?

Right now the property is just in my name. Is it a stupid idea to "sell" the property to my wife as a primary right after I purchase, then live in it for 2yrs and then rent it out for 3yrs?

Why do people who buy as primary, live for 2yrs then rent for 3yrs get all 5yrs tax exempt! vs starting out as an investment and then deciding to make it a primary so expensive?

Thx for any inputs :) 

" Why do people who buy as primary, live for 2yrs then rent for 3yrs get all 5yrs tax exempt! vs starting out as an investment and then deciding to make it a primary so expensive?"

3 years after the move out is exempt from whats called non-qualified use under section 121.  Rental years before moving in as a primary residence are not exempt as you mentioned above. You cant avoid gain on the appreciation that happened when it was not your PR. 

"Right now the property is just in my name. Is it a stupid idea to "sell" the property to my wife as a primary right after I purchase, then live in it for 2yrs and then rent it out for 3yrs?"

What are you trying to accomplice with this? You can do the exact same thing without selling/transferring to your wife. Sale triggers transfer cost and even property tax revaluations.