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My mother in law sold her primary residence to move in with…

My mother in law...

My mother in law sold her primary residence to move in with us this month. Can she reinvest the amount into another home to rent out with paying taxes on the sale. Sold for 1.4 mill, less 250k (once in a lifetime) less expenses of 100K=1.050mill in gains. She bought the home 50 years ago for 25k with no major remodel.

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With out paying capital gains taxes

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12/28/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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So sorry, no. The 1031 exchange specifically prohibits personal use property.

...

Becasue this WAS her primary residence, as you know, there is the 250,000 exclusion.

...

On the gain above that, long-term gains and qualified dividends taxed at

  • 0% if taxable income falls in the 10% or 15% marginal tax brackets
  • 15% if taxable income falls in the 25%, 28%, 33%, or 35% marginal tax brackets
  • 20% if taxable income falls in the 39.6% marginal tax bracket

...

Here;'s the guidance from IRS on the 1031 exchange:

...

https://www.irs.gov/newsroom/like-kind-exchanges-under-irc-code-section-1031

...

From there:

...

"What property qualifies for a Like-Kind Exchange?

Both the relinquished property you sell and the replacement property you buy must meet certain requirements.

Both properties must be held for use in a trade or business or for investment. Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment"

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Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars on your screen, and then clicking “submit" – That’s the only way I’ll be credited for the work.

I hope you’ll rate me based on my accuracy and thoroughness (as opposed to any good news/bad news content). Thank you!

..

But again, if you need more on this, or if I've not understood your question correctly, please let me know.

Lane

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986

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Customer reply replied 7 months ago
what is the difference if she lived in a home sold it and bought another home at a lessor valve?

No difference.

...

Before the advent of section 121, one could roll the gain into another residence. IRC §121 replaced that with the full exclusion of 250,000 (500,000 for those filing jointly)

...

IRC §1031 sounds a lot like the OLD law for residences, becasue the gain is deferred into the next property.

...

but again, IRC section 1031 is only for like kind business or investment property.

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Customer reply replied 7 months ago
Thank you for your response. So in other words there is no way to avoid paying 250k in capital gains taxes?

SO sorry to be the messenger, but that's right.

...

Some of the recognizable gain will be at 15%, some at 18.3 (15% plus the 3.8% ACA surcharge on taxable income over 200000) and some at 23.8% (the 20% plus the 3.8% surcharge)

...

So 250 is about right

...

I hope you’ll rate me based on my accuracy and thoroughness (as opposed to any good news/bad news content). Thank you!

..

But if you need more on this, please let me know.

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars on your screen, and then clicking “submit"– That’s the only way I’ll be credited for the work.

I hope you’ll rate me based on my accuracy and thoroughness (as opposed to any good news/bad news content). Thank you!

..

But again, if you need more on this, or if I've not understood your question correctly, please let me know.

Lane

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Hi, Lane here.

...

I’m just checking back in to see how things are going.

...

Did my answer help?

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars on your screen, and then clicking “submit"– That’s the only way I’ll be credited for the work.

..

But again, if you need more on this, please let me know.

Lane

Ask Your Own Tax Question

Hi. Did this help?

...

Do you need more here?

...

Let me know how I can help,

Lane

Ask Your Own Tax Question

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit") … That’s the only way JustAnswer will compensate me for the work here.

...

But if you need more on this, please let me know.

Lane

Ask Your Own Tax Question

Hi,

...

I’m just checking back in to see how things are going.

...

Did my answer help?

Please let me know if you have any other questions AT ALL before rating me.

...

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit") … That’s the only way JustAnswer will compensate me for the work here.

...

But if you need more on this, please let me know.

Lane

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