Section 121 Tax Exemptions

primary residence

While many individuals buy their first homes for investment purposes, a primary residence still does not qualify for a 1031 Exchange as "investment property." The IRS created Section 121 to provide a tax savings for people selling their primary residence.

Section 121 allows an individual to sell his/her residence and receive a tax exemption on $250,000 of the gain as an individual and $500,000 as a married couple. To be eligible for this tax savings, the home must be held as a primary residence for an aggregate of 2 of the preceding 5 years.

It is possible to combine both Section 121 and Section 1031 on a primary residence under specific circumstances. Examples of these circumstances include:

  • A working farm containing the farmer’s residence—the working farmland falls under Section 1031 and the farmer’s house falls under Section 121.
  • A duplex or similar plex with one unit being owner occupied (Section 121), the balance held as investment with tenants (Section 1031).
  • A residence (Section 121) containing a home office or land that could be partitioned (Section 1031).

Do you Qualify? Answer some basic questions to determine whether an exchange is right for you and your current situation.

"WASHINGTON STATE LAW, RCW 19.310.040, REQUIRES AN EXCHANGE FACILITATOR TO EITHER MAINTAIN A FIDELITY BOND IN AN AMOUNT OF NOT LESS THAN ONE MILLION DOLLARS THAT PROTECTS CLIENTS AGAINST LOSSES CAUSED BY CRIMINAL ACTS OF THE EXCHANGE FACILITATOR, OR HOLD ALL CLIENT FUNDS IN A QUALIFIED ESCROW ACCOUNT OR QUALIFIED TRUST." RCW 19.310.040(1)(b) (as amended)