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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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We own a house we have been renting .6 years. It was my

Customer Question

We own a house we have been renting for 4.6 years. It was my primary residence and we rent a house ourselves now. We want to buy a new house. When we sell the house we rent out is there a way we can use all the profit to buy the new house without paying capital gains.
Submitted: 6 months ago.
Category: Tax
Expert:  Lev replied 6 months ago.
Yes - that is possible if you purchase another rental property. You may choose to do so called section 1031 like-kind exchange..However if you want to purchase a personal residence - it would not qualify for section 1031.The replacement property must be also investment or business property like another rental property. .
Customer: replied 6 months ago.
Even if the first was our primary residence and we have not purchased anything else while renting it out?
Customer: replied 6 months ago.
And we buy a new primary residence
Expert:  Lev replied 6 months ago.
That make no difference.To qualify for the exclusion - the property must be owned and used as a primary residence at least two out of last five years before the sale.
Expert:  Lev replied 6 months ago.
As these conditions are not satisfied - you do not qualify for the exclusion.But how proceeds are used is not relevant.The ONLY way to defer (not avoid!) tax liability on the gain realized from the sale of rental property is section 1031 exchange.I will help you to estimate expected tax liability if needed.

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