Home Sale, Tax Stategy. Exclusion or Deferral of Gain?
@BuySellTrade
Even if M's IN home sale & CO home purchase did qualify as
Section 1031 like-kind exchange
(which it did not, imo, because Sec. 1031 does not apply to principal residences) that would only have
deferred taxation on capital gain from IN home sale. Just deferred taxes to a future tax year.
Seem to me a better tax strategy may have been to use the
exclusion of gain on sale of principal residence,* allowing married couple filing jointly to exclude up to
$ 500,000 - not just defer taxes on it. And even if the gain was say, $ 600,000, they would recognize the gain, but pay taxes only on amt exceeding $500,000, i.e., pay taxes on $100,000 of $600,000 gain.
Tax-wise makes sense to me, but could be basing it on mistaken azz-umptions or misinterp's.
As always I welcome comment, clarification, correction from our professionals --- legal or tax.
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* Azz-uming the M's had a gain from IN home sale, plus a few other assumptions: owned the home for 2 of last 5 yrs; principal residence for 2 of last 5 yrs; 2 yr look-back, etc. Presumably they had not acquired or relinquished IN home in a like-kind exchange. Publication 523 (2019), Selling Your Home | Internal Revenue Service