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I live in Pennsylvania and have a rental property in Texas. I want to sell my rental property in Texas and buy a property in Florida (a vacation home and occasional rental to family and friends) If I re-invest any profit I make from the sale of the home in Texas and put it towards a home in Florida will I have to pay capital gains taxes on that profit. I bought the house in Texas in 1992 so I will proably make about $30,000 on a sale.
Country/State/Province of question: USA Already Tried: Researched the IRS website.
Hello Noggin, You can defer any tax which is due on the sale of the rental home in Texas by participating in a 1031 Exchange. With a 1031 Exchange, the proceeds from the first sale are used to buy another like kind investment property. However, both properties involved must be held for a productive purpose in a business or a trade. So your primary use of the replacement property would again have to be for rental. Use of the home as a personal vacation home with occasional rentals to family and friends would not qualify as an investment property, and could not be purchased under the 1031 Exchange rules. The only way you can defer the taxes from the sale of the property in TX is to buy another rental property, where that is the primary purpose of the investment. If this was helpful please press the Accept button. Positive feedback is also appreciated. Thank you Noggin.
Accountant
25+ years tax consulting. Specializing in returns for US citizens living abroad