The best place to look is right at the source: www.irs.gov. Search for the 1031 exchange rules which is in, strangely enough, section 1031 of the IRS rules. Also look for the recent jobs creation act of 2004; this is where the 1031 exchange rule was changed slightly - it says that for you to sell tax-free using the 24/60 month rule where that property was obtained from a 1031 exchange, you must OWN that property for at least 5 years. However, it appears that this won’t affect your situation. Just food for future thought.
I own two beachside properties in Daytona Beach right next door to each other. I’ve been living in one home for 13 years and purchased the home next door about a year ago. It stays vacant most of the time (except for my use of the backyard, garage and occasionally as a small income generating vacation rental).
I’m looking longterm to sell both properties (about two or three years from now) and purchase one larger home to live in.
My question is this: If I sell the home I’m living in, put the proceeds into the house next door and refinance, then live in the house next door for a period, can I avoid capital gains altogether once I sell the second home?
Huh, putting money from the sale doesn’t affect the gain, refinancing doesn’t affect the gain. Just take all the mortgage stuff out of the equation.
Believe it or not you’re kind of on the right track though. Sell the one you’re in now, it’s been primary residence for at least 24 of the past 60 months. Move into the one next door, wait 24 months and sell it. It will have then been your primary residence for 24/60 months. Or move next door now, sell them both 24 months from now, it’ll look funny but they’ll both qualify.
You might want to go back and look at the rules; I believe they say that you can only exercise the capital gains exclusion from a sale of a home once every 2 years. So, even though ishmaelshishmael might qualify for the 24/60 month requirement, he can only sell one at a time (one every 24 months) to take advantage of the exclusion.
So it seems to me the best route to take is for ishmaelshishmael to sell the one he’s living in and can qualify for the exclusion, move in to the one next door, then sell it after living in it for 24 months as his primary residence.