One way for you to sell your real estate if the buyer can’t get conventional financing is to offer the buyer seller financing or sell the home on an installment basis. By using an installment sale you would qualify for the benefits of the tax exclusion but you would take the risk of being your buyer’s lender – something that might not be comfortable.

You should also consider how much money is involved. As a result of recent housing price declines, your profit (capital gains) on the sale of your real estate might be less than you think.

You should sit down and compute what your profit will be if you sold while you would still qualify for the home sale tax exclusion. Then you should determine what your taxes would be if you sold the home and you did not qualify for the home sale tax exclusion.

If the home is no longer eligible for the home sale exclusion and you were planning on using the money to invest in an investment property, you might benefit from a 1031 tax deferred exchange of real estate. In a 1031 exchange, you would sell the home and buy a like-kind real estate property.

The 1031 exchange, also called a tax deferred exchange or Starker trust, would allow you to defer paying all taxes, including recapture taxes on any depreciation you took, until the replacement property is sold and you would also not have to pay any taxes on the capital gains. In some cases, you might not have to pay taxes at all (federal or state).

But you’ll need to be careful. The 1031 exchange rules are rather specific and can be complicated.

We have a number of videos relating to 1031 exchanges for you to view including the following:

What is Cost Basis for Purposes of a 1031 Exchange? Video

What to Ask a 1031 Exchange Company? Video