Question on 1031 / Capital Gains Taxes

[Woodman228]

Scenario:   Bought rental home#1 for 100K in 2015.    Sold rental home#1 for 150K in 2019.    Bought rental home#2 for 160K in 2019 and transitioned to permanent resident in 2020.   Looking to sell home#2 in 2022.   Since we have been full residents for 2 years, we do NOT pay any capital gain taxes?     Correct?    Thanks

[Anonymous_ · Accepted solution]

Did you do a proper Section 1031 exchange or simply sell a rental property and then buy another?

You can exclude capital gain if you owned and used the house as your primary residence, but you will have unrecaptured Section 1250 gain from the depreciation deductions you took (or should have taken) during the time period that the property was a rental and possibly a period of disqualified use during the time the property was used for rental purposes.

[Mike9241]

see a tax pro. the rules are different when you convert a rental to personal use. the rental period is the period of nonqualified use. the period of nonqualified use is used to calculate the portion of the gain that is not excludable.