All Forum Posts by: Brent Bonine

Brian,
We get this question quite often. In order for you to defer your capital gains tax, you need to reinvest into a property that is of equal or greater value than the property you are selling. You must also move a corresponding amount of debt into your new property.

Many investors think that they are allowed to take their principal out and only reinvest the gain or proceeds. However, the IRS doesn't allow this. They assume that if you improve your financial situation that you are taking the gain first and therefore you are responsible to pay taxes on that.

The other point to consider is that you mentioned that you want to use the proceeds for the purchase of your home. If you are going to live in this home, it is considered personal property and not investment property and is not eligible for a 1031 Exchange transaction.

I hope this helps