Finding ourselves in a situation where me and the wife are moving out of Colorado in the summer to go back to Texas due to a great job opportunity that is being provided to me.

The plan is to live (for ~3 months) at my parents house while we get our feet under us, then either rent or buy another property.

We bought our current residence in Denver last November (2020), and at the time had no idea where life was taking us. Aka we didn't think we'd move this quickly. This puts in a interesting situation, where if we sell prior to this upcoming November, we'd have to pay 25% on the capital gains realized in the sale.

Are the only solutions to avoid that tax to wait it out (pay for a vacant home) to November and then sell, or turn the house into a rental? We'd be out of state so we'd need a great property manager to help with the day-to-day stuff which eats a % of the revenue. Does refinancing OORE to Investment Property even exist and/or make sense? If it was a Investment Property we could either rent or do a 1031 exchange, correct? I'm assuming those things cost serous $$$$ though, where it wouldn't make sense.

Just want to have all my options in front of me so we can make an informed decision.

Apologies if I've left out some critical details, or have not explained things thoroughly. Appreciate y'alls insight on something like this.

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Are the only solutions to avoid that tax to wait it out (pay for a vacant home) to November and then sell, or turn the house into a rental?

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The rule is you must LIVE there for 2 of the last 5 years.

How much capital gains tax are we talking?

It is 2 of 5 years living there. There are so more rules that can get you a partial tax. Read up on it and see if you qualify.

If you are making 100+ on the property sale i think i would rent it 7-8 months and not claim it. Put on the market for a close no sooner than 2 years owned date. Just dont market it anywhere than the IRS can find later. Keep bills in your name / etc.

Evestor you are correct. In regards to capital gain tax, we have to live there 2 out of 5 years. I did not realize however that there were partial tax exclusions though that is helpful!

As far as what type of value would be realized, I am somewhat confidant that it would be north of $100k. Most of the comps around my neighborhood are selling for much higher than I bought. Ultimately, I don't have a crystal ball but that is my guess

Assuming you don't want to risk it with the IRS as suggested above, a 1031 will cost about $1000. Remember you are only deferring the $25k in taxes. Unless you hold it upon your death in which it will step up in basis.

The big problem with going the 1031 route is you will have to identify a replacement property within 45 days of closing on your sale. That may be tough in the Texas market depending on where you are buying. You may end up having to throw that $25k at a seller to get them to accept your offer over the other 30 offers because you're on a time crunch.

That's some helpful information Martin, I appreciate it.

I'm reading the IRS publication 523 and it states that Work-Related Moves can qualify for partial exclusions. Which I think would cover all of the gains realized after selling expenses.

One question is who do I prove that information to? Or what do I need to do to show the exclusion?


And now the tough work of seeing if it should become a rental (if it's worth the CF), or just sell it and move on.