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Hi Fools,

My first question is a big and complicated one:

I sold a piece of Investment RE last year and bought another using the IRS's 1031 tax free exchange system. I bought the new one according to guidleines that the new piece of RE cost more than the cost of the RE sold. The new piece I bought is a Duplex that cost twice as much as the one sold. I want to live in one side of the new Duplex while maintaining the other half as Investment RE (rental), valuing it at more than the side I want to live in since it is larger. If I were to break down the value of both units, the other half, the half I don't want to live in, is valued alone more than the 4-plex I sold or the original property sold that initiated my 1031. Now comes the question; Can I keep from paying taxes on the original 4-plex sold by calling the larger half of my new investment worth more than the original property sold? In essence I'm calling the new 1/2 of my property the new investment and keeping the other side as my home and writing off the interest from the rented out side on the proper IRS rental property schedule and using the interest from the occupied side as home mortgage interest deduction, not Investment Mtg interest. Does anyone follow me here? It's a very complicated thought (IMHO)that I believe reflects the law. I want to know from someone who understands tax law if my thinking is flawed. Lord knows it has been in the past.

Question 2:

If my thinking is true (above question), when I sell my new property in 2 years, does the capital gains exemption of a personal residence apply to only half of the sales price of said property while the other half would have to be reinvested again using 1031 tax free exchange?

One more Question:

If I sell a rental property and buy another like rental costing more.... Basically adhering to the 1031 tax law. Can I keep it rented for 2 years, occupy it after that for 2 more years using it as a primary residence and avoid capital gains altogether upon sale since it was converted to my primary residence and occupied for 2 years as my principle residence? Thus coming under the law giving $250,000 capital gains exemption for a single person selling their primary residence?

I hope I have come across clear and concise. If I haven't I can elaborate on any particular part. Thank you in advance for any assistance you may post.

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