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I'm hoping someone has some advice...

My parents moved back to Montana from England two years ago. They own three pieces of property there. One has a rental house on it, and is where they are living now. The other two are undeveloped. Their goal is to sell one piece of property, and use the money from that to build a house on the other. (And return their current residence to a rental)

The problem is, of course, how can they do this without having to pay ridiculous capital gains taxes? I've heard something about using the new house as a rental for two years first (ugh -- can you imagine building a new house, and then having to wait two years to live in it while someone else messes it up?). I've also heard something about a 1031 exchange, which sounds kind of "fishy".

Any ideas?


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