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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15720
Experience:  15years with H & R Block. Divisional leader, Instructor
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I was trying to do a 1031 with my previous home in CA that

Customer Question

I was trying to do a 1031 with my previous home in CA that I've been renting out and a house I'm buying for retirement in FL but was told because my intent is to use it as my primary residence, I'm unable to do that. So we are closing on the FL house today and the CA house at the end of the month. I will be putting the proceeds from the CA house against the loan for the FL house. Will I have to pay capital gains on the sale?
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: I am still active duty military and buying the house with VA. We lived in the CA home until transferred and rented it to cover the cost of the mortgage. My intent is for the FL house to be my primary residence when I retire but I may rent it out for a short period until my actual retirement date. I also have a house in VA where we currently live that will be sold when I retire.
JA: OK. Got it. I'm sending you to a secure page on JustAnswer so you can place the $5 fully-refundable deposit now. While you're filling out that form, I'll tell the Accountant about your situation and then connect you two.
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.


The sale is a taxable event so if you have a gain you will be taxed. As this was your previous home you may be allowed to prorate the exclusion under IRC 121. That is when you are allowed to exclude gain up to $250000 if single and up to $500,000 if married.

When a homeowner sells or exchanges a principal residence, the homeowner is only required to report the sale when his capital gain is more than $250,000. This benefit, often referred to as the section 121 exclusion, can be used for a home sale every two years, as long the owner used the home as his principal residence for at least two years in the five-year period preceding the sale. Military homeowners receive an added benefit under section 121 because they can suspend this two year “use test” for up to ten years while serving on active duty.

Thus, a servicemember using the home as his primary residence for two years during a five-year period can suspend disposition for up to ten years and still use the section 121 exception to exclude his capital gain from taxation.

The time you rented would count as ownership time but you still need to have used the home for 2 years as your main home (covered under special rule for military). The rental time is disqualified use. The gain on a residence must be divided ratably between the nonqualified use period and the qualified use period during the 5 years before the sale. Only that portion attributable to the qualified use period can be excluded from income.

The depreciation you used or could have used is under recapture rules and you cannot exclude that amount. It is taxed to you in year of sale if you have a gain.

Customer: replied 1 year ago.
No good news here. So basically I'm going to pay 20-30% of the gain on the adjusted basis in taxes?
Expert:  Robin D. replied 1 year ago.

Possibly, if the use was in that percentage range.

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