@iced wrote:
@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.
I understood what you said, and answered it before. Shown above in bold and clarified below in bold/italic. Provided you meet the requirements for the exemption (primary residence, two people on the deed or married, lived there two years, etc.) you won't pay any tax on the first $500k in gain. If you're struggling to understand this portion of the tax code, meeting with an accountant before making a decision is cheap. For this amount of money you almost certainly will be working with a tax professional at some point. If you're not, you're definitely missing other exemptions. 1031 exchanges should definitely involve the advice of an accountant. Delayed exchanges (i.e. property identified within 45 days, but not closed on for 180) are challenging to say the least.
publication 523 from the irs:
If you sell your home at a significant profit (gain), some or all of that gain could be taxable. However, in most cases, if the home you sold counts as your main home, the first $250,000 of gain isn’t taxable—$500,000 if you are married and filing jointly.
