Why the Owner Occupant Sales Exclusion Strategy Is So Powerful

Authors of The Book on Advanced Tax Strategies, Amanda Han and Matt MacFarland explain the owner occupant sales exclusion strategy.    Amanda & Matt's website: https://www.keystonecpa.com/  Suggest a topic for the podcast: https://linktr.ee/remoterealestateinvestor  --- Transcript   Michael: Hey everybody, welcome to another episode of the remote real estate investor. I'm Michael album and today I'm joined by my co host, Tom Schneider, and two very special guests, Amanda Han and Matt McFarland, two very distinguished notable authors, CPAs, tax experts and real estate investors. And in today's weekend wisdom, they're going to be talking to us about the owner occupant sales exclusion, that can really boost real estate investors gains. So let's get into it.   So one thing I want to make sure that we highlight for for listeners, and a question that I want to ask too, is about the owner occupant sales exclusion. Can you talk to us a little bit about what that is? And how folks might be able to utilize it?   Matt: Yeah, it is actually a great strategy. And, you know, again, why don't we use the word incentives that they provide people out there in the tax world, essentially, homeowners, if they own and use a house for at least two out of the previous five years, and they go and sell the property, they a single person can get up to $250,000 of gain tax free married couples, $500,000.   So that's just by itself, you know, if you're a homeowner, you're not even, you know, investing in rental properties. And that's great. If you're looking to sell your property, and you, you know, lived in the last five years, you've got some game, you know, good chances are, you know, a good chunk of if not all of it can be totally tax free.   Now, the cool thing is, we've actually seen this coupled for real estate investors. So and you know, and a good example would be somebody lives in a house for two years, they move out for whatever reasons, but they don't sell it right away, they rent it out for up to three years. So let's say they sell it right before the end of the year five, they say if they're looking back, they meet the two out of five rule, they can actually still exclude the 250 or $500,000. Again, even though it's been a rental property at the time of sale. So that's we've seen clients take advantage of that. Now, if you will, you know, you want to totally supercharge it, we've seen clients take advantage of that. And then also, maybe their gain is more than the 250 or 500, then they do a 1031 exchange to defer the rest of the gain because they're selling a rental property and buying another rental property, you know, so there's a lot of different ways that you can use it to your benefit.   Michael: So question for you both if I if we want to string a couple of these concepts and tactics together, could I buy a owner occupant house live in it for two to five years, rent it out for just under three years, then when I go to sell it for a gain of more than 500,000? Maybe called 750? I do a 1031 exchange and get the owner occupant exclusion so that I get that 500 tax free. And then I can 1031, the additional 250 on top of that, go buy an investment property and then have it be an investment property for a little bit and then do a refinance to an owner occupant primary mortgage. Is that possible?   Matt: Yeah. So on the front end, they're selling your property, there's a primary they're gonna, you know, probably pay some taxes, whatever the exit the gain, it was an excess of 500. Yeah, what you do with the money doesn't matter with respect to those rules. So you can still utilize exclusion if you're buying an investment property on the on the back end. But yeah, you can always buy an investment property and change it into a primary, but there's definitely things you want to be aware of. And there's things you can do with a 1031 exchange, if you're selling a rental buying another rental, and then you move into that rental later on, t