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Selling Land investment (Current Home) for 900k profit. Can I enjoy the 500k personal residence tax deduction and invest the other 400k into my next investment without getting taxed this year? This is Located in NC, USA.

Just trying to figure out the most sensible options for reinvestment without having to reinvest ALL of the money from the sale, if possible.

Background: I bought it to live in initially, and we have always lived in it. But in reality, the 5.5 acres is and has always been ideally redeveloped to commercial ... I just wanted to live on a big lot in a growing area and see if it turned into a gold mine, which it did. I satisfy the requirements of 121. Just not sure if I satisfy any other requirements for an exchange like mentioned in : https://www.irs.gov/irb/2005-07_IRB#RP-2005-14

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    Is it investment land or is it your primary residence? And was it the opposite at one time? – mhoran_psprep Aug 2 '18 at 21:14
  • I bought it to live in initially, and we have always lived in it. But in reality, the 5.5 acres is and has always been ideally redeveloped to commercial ... I just wanted to live on a big lot in a growing area and see if it turned into a gold mine, which it did. I satisfy the requirements of 121. Just not sure if I satisfy any other requirements for an exchange like mentioned in : – rob Aug 2 '18 at 22:31
  • irs.gov/irb/2005-07_IRB#RP-2005-14 – rob Aug 2 '18 at 22:31
  • Section 1031 which covers like-kind exchanges requires that the property be held for productive use for a trade or business. – A.K. Aug 2 '18 at 23:49
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You wrote “I”, but the $500K exclusion is for 2 people. If you are married or own it and live in it with a partner, the $500K is correct.

There is no longer a rule allowing you to reinvest in a larger property to avoid the tax on gains, that changed a long time ago in favor of the larger gain exclusion.

You say it will sell for $900K, but don’t mention the cost. The cost, along with all improvements, is part of the basis, and is subtracted from net sale price.

Currently, the GOP is floating the idea of allowing a stepped up basis to adjust for inflation. Keep an ear open on this matter, as it might also affect your basis.

  • Married filing jointly. I tried to keep it simple. It's 900k profit. Are you saying the link above (RP-2005-14) is no longer relevant? They give some specific examples where you take the exclusion and then defer the rest via an exchange/reinvestment ... just not sure if under current circumstances I quailfy for the exchange, which is the essence of the quesiton I am asking. If I "use" 1/3 of the property as my office/business use, and the rest for residential, would that change my current circumstance? Just trying to figure what I need to do TODAY to qualify myself for both – rob Aug 3 '18 at 16:21
  • The deferral, “buy the replacement property” is gone. It was replaced by the exemption on gains. – JTP - Apologise to Monica Aug 3 '18 at 17:20
  • Any document that supports that the above document/explanation is no longer valid? – rob Aug 3 '18 at 17:52
  • Tax reform of 1986? If I’m not mistaken, that’s when the federal of gains went away. Not offended you’d ask, but the change was a lifetime ago. – JTP - Apologise to Monica Aug 3 '18 at 18:05
  • Read the doc above, because it was written in 2005, and seems to state that you can do both a personal exemption AND a like for like 1031 exchange (on the amount above and beyond the exemption). I just don't know what all the caveats and rules would be for how I personally today would be able to make my residence qualify for doing both, since today I just live in it (no business home office claimed or rental usage). – rob Aug 3 '18 at 18:58

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