Depreciation lowers your basis. A lower basis means a bigger gain. The exit is where a strategy either finishes well or hands the whole thing back, and it is decided years before the closing.
One transaction told as the seller hears it and as the buyer hears it. The clearest thing we have written.
One transaction told as the seller hears it and as the buyer hears it. The clearest thing we have written.
This is the honest half of cost segregation. The fast parts you wrote off in year one are recaptured at ordinary income rates when you sell; the building itself is recaptured at up to 25%. Nobody who sold you the study put that on a slide.
The recapture bill, in advance, slice by slice: ordinary rates on the fast cost-segregation parts, up to 25% on the building itself, long-term rates on the rest, NIIT and your home state included. This prints that number the day you buy, not the week you sell.
A 1031 exchange carries the whole gain forward — the appreciation and the depreciation you recaptured — into the next building. Our job is finding you that building, which is the part most exchange companies cannot do for you.
The same sale, done as a 1031 instead: what the bill would have been, what rolls forward, and what you can buy with the money that did not go to tax — both endings side by side. Where a primary residence is in the mix it applies section 121 first and rolls the rest.
Only if you want the whole gain deferred. You can buy smaller — you just pay tax on the difference you take off the table, and sometimes that is exactly the right trade. You can also split: part rolled forward, part taken in cash, or one property exchanged into several. It is a set of choices, not one rule.
If the property was your home as well as an investment — you lived in it and later rented it, or you live in part of it — the two can be used together on one sale.
Section 121 goes first. Live in it two of the last five years and up to $500,000 of gain (married, filing jointly — $250,000 single) comes out entirely tax free. Not deferred. Gone. Then the 1031 takes what is left and rolls it into the next building. The IRS wrote the procedure for doing both in one transaction, and the order is not optional.
Section 121 deliberately does not cover the gain created by depreciation you took — that part it leaves on the table. The 1031 picks up exactly that part. So the exclusion handles the appreciation and the exchange handles the recapture, and between them a sale that looked like a large tax bill can produce very little.
Two of the last five years lived in it. The investment side genuinely held for investment. Time on the exchange clock from the day you close. And periods where it was neither your home nor qualifying use can cut the exclusion down. This is the one page on the site where we will not give you a number without seeing the dates — and your accountant signs it off, not us.
One rolls the gain into the next building. The other parks it in a zone and starts a clock.
The exchange itself, start to finish: the two clocks, the three identification rules, the intermediary who must hold the money, boot, the reverse and improvement routes, and the mistakes that make the whole gain taxable anyway.
What the zones actually do to a gain, and the holding periods that decide whether it was worth it.
We are not your accountant and this is not tax advice. Everything here is arithmetic on public records and the numbers you type — run it past the person who signs your return before you act on it.
Back to the start.