Strategy 1: 1031 Like-Kind Exchange A 1031 exchange can be used to defer capital gains tax on a property sale. When you dispose of a property and generate a capital gain, you can defer tax by reinvesting in a like-kind real estate investment property.

Can I defer a capital gain?

Deferring Those Capital Gains Taxes Once upon a time, you could have deferred capital gains taxes from the sale of that stock through use of a 1031 exchange. This means only capital gains from the sale of real estate for investment or business purposes are eligible for this tax-deferral strategy.

Can I defer gain on sale of home?

Deferrals of capital gains tax are allowed for investment properties under the 1031 exchange if the proceeds from the sale are used to purchase a like-kind investment. And capital losses incurred in the tax year can be used to offset capital gains from the sale of investment properties.

Can you exclude gains on sale of primary residence?

Instead, it is used for gains exclusion on your primary residence when you decide to sell. Single filers can exclude up to $250,000 of gains on the income from the sale of their primary residence. Those filing jointly can exclude up to $500,000. To take advantage of section 121, you need to have lived in the home for two of the last five years.

Can a 1031 exclusion be used on a primary residence?

The Section 121 exclusion isn’t a tax deferment method like a 1031, however. Instead, it is used for gains exclusion on your primary residence when you decide to sell. Single filers can exclude up to $250,000 of gains on the income from the sale of their primary residence.

Which is the principal residence of the taxpayer?

The home where the taxpayer spends the most time is generally the principal residence.

Can a primary residence be an investment property?

If converting your primary residence into an investment property isn’t feasible, however, you may be eligible to take a Section 121 exclusion, which may mitigate some of the tax hit. So while rules (especially those created by the IRS) are not meant to be broken, spotlighting the exceptions can make a big difference for your investment portfolio.