@Anonymous wrote:
The exemption will cover all your gains up to $500,000 (presuming two people are on the deed or you are married and you've owned it for at least two years) leaving you to pay taxes on any amount in excess. You won't pay taxes on the first $500k. Things get a little weird if you don't have significant other income during the year in which you do this, so you may consider consulting with an accountant in advance to avoid any surprises. I paid Alternative Minimum Tax after a similar gain during a year in which I was transitioning from employee to business owner.
The concern is that, depending on when we sell, we will have in excess of $500,000 in gains. If it ends up resulting in making the entire amount subject to taxes, we'll probably sell earlier for a price that's at $500,000 above what we've put into the place. If it's only the excess above $500,000 that's subject to taxes, we can let the property ride a little longer and just pay the taxes on the excess.
The 1031 exchange would also work, though we'll have to rely on luck as we will need to sell our property before we can put an offer on another place, at least if we want to use any of the gains from the sale of the current property. If we don't get an offer accepted within 45 days, we'll miss that opportunity and fall back to the original $500,000 exemption.
