Selling income property and purchasing a house

[Joan Gerhardt]

I sold the house I had been living in and used the money to purchase a house in Colorado that I intended to move into.  I didn't move in but decided to rent it while I lived in rental property in another state. It's now been five years and I want to sell the house in Colorado and buy one to live in where I have been living in Texas. I will probably sell the house in Colorado for about $70,000-75,000 more than what I bought it for since I bought it in 2009 when the market was very different from now.   I am trying to find a way to avoid paying Capitol gains tax on the income.  I understand that if you live in a house, sell it, and then reinvest in another home you do not have to pay this tax.  Does anyone know about rental property to home.  The sale of the home in Colorado would be about $300,000. I would be grateful for any advice.  

[Bill Exeter]

Hi Joan,

The property has been held as a rental property and therefore would qualify for tax-deferred exchange treatment under Section 1031 of the Internal Revenue Code. The challenge is that you want to acquire property in Texas that will serve as your primary residence. The properties sold and the property acquired must be held for rental, investment or use in a business in order to qualify for 1031 Exchange treatment. You could sell the rental property in Colorado and complete a 1031 Exchange by acquiring property in Texas that would be rented for a sufficient period of time in order to qualify for tax-deferred exchange treatment and then you could move into the property. Advisors