When it comes to capital gains avoidance, I've seen some misleading information on the web lately thats either outdated or just misunderstood by the poster. I'm going to give it my best shot here to clear up a few things, or at least explain them as I understand them.
My first comment is actually advice. If you're considering selling your home or an investment property, see a CPA for tax advice. I was just talking to a lady last week who thought there was no capital gains tax any more. Trust me, there is.
To avoid paying some of the capital gains on a property it must have been your primary residence for two of the previous five years (it does not have to be continuous and uninterrupted, could be four six-month stays) and (so Ive been told) not have been a 1031 exchange in the past. You can avoid paying taxes on up to $250,000 gain for a single person or $500,000 for a married couple.
Now for what I don't know, hence the need for a tax advisor or CPA. I don't know if this gain is computed from your original basis or from what you paid for the home. If for instance you sold a home prior to this law taking effect, ten years ago or however long ago it was, for $100,000 gain and used that profit for a down payment on your present home, would that $100,000 gain count towards your sum total gain? I don't know.
Also, I was told (though I haven't confirmed it) that if you did do a 1031 into the property you now live in (and it was an investment property for some period of time before you moved into it) then you must live in it all five of the five years prior to you selling it (escrow closing date). If anyone knows the specifics of these rules please comment below.
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