Question:
“I talked with my tax guy about selling my rental condo and he said I’m going to have to pay about 40K in taxes if I sell it without doing a 1031 exchange. So I’m going to move into my rental for two years so that I don’t have to pay any taxes when I sell later…”
Answer:
Okay, so I’m going to go into the weeds with something technical that most residential agents don’t know, let alone tell their clients.
(Please verify what I’m about to tell you with a tax professional because I am most definitely NOT one of those!)
If you have a rental, you’ve been “depreciating” it. That means you’ve been getting an annual tax deduction equal to 1/27.5th (yes, that’s a weird #) of the cost of the structure(s) on the property.
But what the IRS giveth, the IRS taketh away. At least in this case. The IRS is going to “recapture” the depreciation you’ve take and tax you on it like it’s your “ordinary income.”
And there may be further tax implications.
I believe that when you move back in you can only shelter any gains that occurred while you live there, NOT before. I’m not as clear on this part, so…
…Once again I’m going to advise you to see a tax pro.
