We have a duplex that has appreciated nicely. Let's say we put $100k in it, and we sell for $200k. Can we roll that $200k over to a SFH that we rent to ourselves? We want to avoid paying capital gains and depreciation recapture taxes on the appreciation.

We may want to stay in the new property for a long time, or we may want to leave in a couple of years and buy a bigger home. In either case, we want to sell the duplex because it has appreciated nicely and it will soon have a vacancy in the remodeled half, so it should attract owner/investors and fetch a higher price. (or so we think)

-------------------------------- I've been scouring the internet and have only found the usual info about 1031's (and yes, I will look for a CPA. Any recommendations in LA?)...

Advice/questions?

Dave,

I have researched many 1031 questions on the following site:

www.exeter.com

They have a library of articles on almost every subject related to exchanges, including corresponding tax codes. Go to "Exchange Library" in the drop down menu.

If you need further information, you can call and get a live person who will answer your question. Very informative and friendly.

I don't understand the situation clearly, but it sounds like your plan is to move into the duplex, stay there for "a long time" or move in two years.

Have you checked into the rule that allows you to exclude up to $250K in capital gains, or $500K married filing jointly on your principal residence? The only requirement is living there 2 of the past 5 years, and it sounds like you will already be fulfilling the time requirements. Although you may only get a 50% exclusion if you only occupy 1/2 of the unit.

Sid,

Yes, our situation is a bit complicated and I tried to not give all the minor details, but I left out too much...

We are not currently living in the duplex in question. We rent. So the 121 rule won't apply. We want to sell it in a 1031 exchange to another duplex (because my calculations don't show good ROI for Los Angeles duplexes - unless you take advantage of leverage and improve the rent via improvements or bringing rent up to market value).

But if we sell the duplex and 1031 it, we incur sales costs plus we have holding costs while we improve the next property.

So, my (hairbrained?) plan is to 1031 the duplex into another duplex or SFH. Live there as a renter (LLC needed?) Improve it (at leisure) for both our own use and possibly for future rental.

From what I read, the self rental rule just says I can't deduct losses from the self rental from my gains on other passive losses (and vice versa).