Posted by dealmaker on March 16, 2005 at 09:34:08:
OK, the place you lived in for 6 years is your RESIDENCE for 2 of the last 5 years. The first $250K ($500K-married filing jointly) you put in your pocket withou paying any taxes on it. The deal about putting the money into a new place went away with IIRC the 1987 tax code change!
The rental is an INVESTMENT property. You will owe tax on any gain, plus recapture of the depreciation. The recapture shouldn’t be too much for two years, hopefully you’ll have a HUGE gain and pay taxes on it. That’s why you invested after all!
You can do a 1031 Tax Free exchange if you can roll all the proceeds into a new property. If you’re in CA now and have big appreciation it may be worthwhile, if you’re in TX and have 4% it’s probably not.
If you have a HUGE gain on the rental (CA maybe?) and wanted to shield it you could arrange for one of you to take over it and the other to take over the residence, equalizing the money of course. Then 1031 the rental into another rental. The reason for this is that the acquired ppty on the 1031 MUST BE TITLED the same as the relinquished ppty in order to avoid the taxes.
Hope this helps, it’s rainy today so no golf, answering questions here instead.
dealmaker