capital gains on sale

[marciejpyke]

I bought a townhouse about six years ago in Arizona.  I lived in for a while, but then moved to New Jersey and decided to rent it out.   I only own that property and now would like to sell it and buy a primary residence in New Jersey.  My income is under $35k/year and will be profiting $100k or so on the townhouse.  What amount of capital gains taxes are associated with this scenario and are there ways to avoid or lower them?

Thank you in advance!

I have some follow up thoughts/questions.  If I were to take the profits from the rental property and do a 1031 exchange... can I live in the property as well as use it for business? Say airbnb or run my massage business out of it or my fiance's painting business or all three?  Also, would the new property need to be of equal to or great than the sale price of the sold property or just all of the profit?  

Lastly, my income puts me in the 0% capital gains bracket, but from what I'm understanding I would still need to pay 15% on any profits that brings my income past $40,400.  This is if I dont do the exchange of course.  Do I have this right or no? 

Thank you so much!

[Mike9241]

if it was your principal residence for 2 out of 5 years before the sale, then you are entitled to the home sale exclusion of $250K (not married). however, before that comes into play you'll have to pay takes on the gain to the extent of depreciation,

is there a way to avoid paying taxes? yes.  by doing a 1031 exchange.  you'll need a lawyer familiar with the laws to make sure everything is handled in accordance with the laws. make even a little mistake and the sale becomes taxable.  example: taxpayer sold a property, personally got the net proceeds which were reinvested in new property. since he got hold of the money, the sale/purchase did not qualify.  

https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx#:~:text... 

[Hal_Al]

Normally the IRS does not allow you to conduct a 1031 exchange with your primary residence. But, in you circumstances, it can possibly be done. See https://learn.roofstock.com/blog/1031-exchange-primary-residence

As to home sale exclusion; it depends on more details.  When do your move out (exact date)? When you moved to NJ was it for a new job (or did you start a new job after moving. There is a partial exception to the two year rule (but not the five year rule) for a job change or other "unforeseen circumstances".

[AmeliesUncle]

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@Hal_Al wrote:

 But, in you circumstances, it can possibly be done.

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What circumstances do you see that would allow a 1031 exchange?  Unless I'm missing it, I don't see any indication that the new house would be used for business.

[Hal_Al]

See the reference.  That's all I was going by with the comment. They implied it could be done. I didn't read the details

[AmeliesUncle]

Both the old property and the new property need to be for business.  They were likely referring to the fact it doesn't need to be 100% business.  It could be using only part of each home for rental or business, then that part could qualify.  But personal portions never qualify.

[marciejpyke]

Thank you so much for your answer.  I have some follow up thoughts/questions.  If I were to take the profits from the rental property and do a 1031 exchange... can I live in the property as well as use it for business? Say airbnb or run my massage business out of it or my fiance's painting business or all three?  Also, would the new property need to be of equal to or great than the sale price of the sold property or just all of the profit?  

Lastly, my income puts me in the 0% capital gains bracket, but from what I'm understanding I would still need to pay 15% on any profits that brings my income past $40,400.  This is if I dont do the exchange of course.  Do I have this right or no? 

Thank you so much!

[Critter-3]

@marciejpyke 

Please stop posting all over the place ... you keep asking the same question over and over and not only have you been answered but you have repeatedly been told to seek local professional assistance and education.  This is not the place to get legal or tax information on the subject you keep asking about.    https://ttlc.intuit.com/community/user/viewprofilepage/user-id/4424931