Instead of selling an investment property and paying tax, see if you can exchange it for an expensive house or a condo. Typically, you’ll sell your property first, have an intermediary hold those proceeds, then direct the intermediary to purchase a replacement property. As long as you receive neither cash nor debt reduction, no tax will be due.
Then you can rent this house or condo for at least enough time to file a tax return, treating it as an investment property. Eventually, you can move into the house or condo yourself.
Under current law, no tax will be triggered. You will retain the basis you had in the property, as investment real estate. After making this house your principal residence for at least two years, you can sell it and exclude up to $250,000 worth of taxable gain from your income. If you’re married, the exclusion goes up to $500,000.
This strategy may enable you to avoid some or all of the tax you’d owe on a sale of your investment property.
