When you sell your principal residence, Section 121 of the Internal Revenue Code allows married taxpayers to claim $500,000 in tax-free profits, and singles to claim $250,000. Revenue Procedure 2005–14 now allows taxpayers to combine this exclusion with a 1031 exchange for an additional exemption, under certain conditions.
more> Your home will qualify as investment property if you are renting it at the time of sale. You can keep your tax-free home-sale profit and also reinvest any additional profit above the limit in a “replacement property” under Section 1031. You do not have to live in your principal residence on the date of sale or exchange if you lived there for at least two years out of five prior to the sale.
You may exchange your residence for any other type of real property within 45 days from the date of sale; you must close the transaction within 180 days. If you apply section 1031 to defer additional tax, you will need to live in your new home for five years in order to claim another exemption from capital gains when you sell.
Be sure to use a real estate agent and tax professional to guide you through the complex process of a combination exchange.
Lisa is a 13 year resident of Steamboat Springs and in addition to selling real estate is involved in developing the Pines at Orehouse Plaza with her husband Brian. Lisa and her real estate team were recently awarded # 1 by Prudential in the state of Colorado for residential units sold. She attributes her success to her team’s commitment to finding creative solutions to their customer’s needs and objectives so that they can achieve all their dreams and goals.
For a wealth of real estate information on the web visit http://www.lisaolson.com/, or email Lisa at lisa@lisaolson.com or call her at 970–846-0713.
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