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One of the great benefits of owning real estate is that the IRS has set up ways for you to sell your property tax-free, without having to pay any capital gains.
The first question you need to ask yourself to determine if you can do this is, "Is the property owner-occupied?"
Even if it's not current, if you have lived there for 2 out of the last 5 years, you can sell the property and have up to $250,000 of tax-free capital gains if you're single, and $500,000 if you are married.
Another way you can avoid taxes on the sale of real estate is if the property is considered an “investment property” by the IRS. A 1031 Exchange is where you sell your investment property and purchase another one whereby your tax basis transfers to the new property, and you do not have to pay capital gains at the time of sale.
There are specific requirements to do a 1031 exchange, so if you have any questions, make sure you talk to a tax professional to see if you could qualify. If you have any other questions, let us know. We would be happy to answer them and send you some more detailed information if you need it.
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