Hello! I'm looking for your help to quantify my alternatives as an unmarried landlord holding a rental property.
Here's the history: I purchased a duplex @ $65K in 1996 and lived in half, then moved and rented both units until the duplex sold @ $175K via a 1031 exchange completed in Aug 2002 in exchange for a single-family house (SFH) @ $180K. The adjusted basis at that point was $97,500, and the gain deferred.*
The SFH has been rented 100% of the time since then and is assessed at $240K which is what the realtor thinks is probably current market value. The adjusted basis is currently $70K which includes the depreciation and deferred gain.* It is paid off as of yesterday (woo!). The SFH is not in an area I prefer to live. I currently rent a small apartment for my primary residence and I must move out at the end of June.
*Depreciation since purchase in 2002 has been $27,500.
I'm considering:
1. Renting/buying a primary and doing another 1031 exchange now for another SFH in an area in which I want to retire and renting it for 2-3 years, then moving in to the new SFH.
2. Moving into the rental at the end of June for a few months to 2 years and possibly doing upgrades for a 1031 exchange at the end of my time in the house; when I move out, buying a primary/renting again.
Now that I'm aware of the 2008 changes that limit the exclusion of capital gains for property that was converted from a rental to a primary residence, I'd like to consider the costs of both of these options. The only costs I believe I'm fuzzy about are the taxes I'd pay for the non-qualifying time between 2009 and the sale, but please feel free to suggest more as I may be missing them.
For instance, if I sell in 2017 for $275K, would the calculation be as follows? ((275K - 70K * 6/8) + 27,500) * .25
And if I move in, how long could I stay before it converts to a primary and is no longer eligible for a 1031 exchange (assuming they are still available then) - 23 months?
Thanks in advance!
*According to my awesome accountant, who isn't terribly familiar with 1031 exchanges nor IRC Section 121(b)(4). I think she may be learning something new today.