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I'm looking to sell a single family rental property for $400K and buy two with a 1031 exchange. I should have about $150K to put down. I may look at turning one of the new properties into my primary residence.

If I buy one for $325K with $125K down and a second for $175K with $25K and rent them both out for one to two years I should be able to convert one into my primary residence correct?

If after 1 to 2 years I decide to sell the $175K property and not reinvest how would taxes be calculated? Would it be on the roughly $25K profit? If so, could I take out a home equity for $25K to prevent a profit and not pay any taxes?

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