Safe haven for investment property capital gains

Member since 2019 · 26 posts · 5 votes

I have an investment property that I will be selling shortly. I’ve owned it for quite some time and it’s in need of much repair. I have an offer on it that I have accepted. Once the sale is complete I will have a nice little cash nest egg.

I’d like to use this money to buy a new primary residence for my family, BUT we are 3 plus years out from being ready for a new house. The house we are currently I would turn into an investment property.... Here’s my question: where should I put the money for the three years? I hate to leave it just in the bank, but I also hate to put it in the stock market and lose any of it. So where should I stash it?

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
@Renee Lee, Your timing couldn't be better for a 1031 exchange into a future primary residence. Sell your investment property and do a 1031 exchange purchasing a really nice house that you would like to have for a future primary residence. Use that house for investment until you're ready for your next primary. Then move into it converting it into your new primary and turn your old primary into an investment property - or sell that house and take the profit tax free using the primary residence exclusion of sec 121.
When you do this there's all kinds of good things that happen to you.
1. You dont pay tax on the sale of your current investment property
2. You buy your next primary residence at today's price instead three years later price
3. It's a fixed asset you own - that's as safe as it gets.
4. You get to make money on it until you move into it.
5. Moving into it doesn't trigger a taxable event so as long as you own that house you'll never pay the tax on the gain or have to recapture depreciation.
6. When you do move into it you either continue the income stream by switching the rent to your old primary. Or you sell the primary and take the profits tax free.
This is one of the most powerful strategies for long term wealth out there. It just takes some patience. Because a 1031 has to be a sale of investment property followed by a purchase of investment property. You can't purchase a primary residence. But you can convert an investment property into your primary residence after a year or two.
And it looks like your timing would be perfect.
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