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If you lived in the home for a full 2 of the last 5 years, you can exclude 250,000 dollars of gain from income. However, you will end up paying depreciation recapture on the property depreciation during the 3 year rental period.
In order to postpone the entire gain (make it not-taxable in the year of sale) you would need to acquire a new rental property that costs as much or more than the sales proceeds of the rental property that you sell. If the new rental is less than the sales proceeds of the property you are selling, there will be a portion of the sale that will be taxable in the current year.
For a 1031 exchange to work, you need to retain a local
tax professional (CPA or enrolled agent) for help planning
. If the transaction isn't properly planned out before the sale, the 1031 exchange will most like fail to meet IRS requirements and the entire gain would be taxable in the current year.
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