Highly Appreciate Residence, Save on the TAXES!

Selling a Highly Appreciated Principal Residence

If you’ve lived in your home for several years, there’s a good chance it has appreciated significantly. When it comes time to sell, strategic planning can help you retain more of your equity and reduce or even eliminate capital gains taxes.

Under current tax law, homeowners may qualify for a Section 121 exclusion, which allows individuals to exclude up to $250,000 (or $500,000 for married couples filing jointly) of capital gains on the sale of a primary residence—provided they have owned and lived in the home for at least two of the past five years. This is a valuable tool for offsetting gains, especially in markets where prices have risen sharply.

However, for homes with significant appreciation that exceeds the exclusion limits, homeowners may still face a sizable tax bill. In these cases, more advanced planning is needed. One strategy is to convert the property into a rental for a period of time and then utilize a 1031 Exchange when selling it as an investment property. This can allow you to defer capital gains taxes by rolling proceeds into another investment property—preserving your equity and building long-term wealth.

This approach requires careful timing and must meet IRS requirements. For instance, you’ll need to demonstrate that the property was held for investment purposes (not just temporarily rented) before it qualifies for a 1031 Exchange. It’s also important to understand how depreciation and recapture taxes may factor into your final numbers.

At Clutch Property, we help clients navigate these scenarios by working alongside trusted tax advisors and 1031 specialists like Ron Ricard from IPX 1031. Whether you’re downsizing, relocating, or transitioning from a personal residence to an investment strategy, we’ll walk you through the options so you can make informed decisions—and keep more of what you’ve earned.