I have a rehabbed house in a transitioning neighborhood that I am having a difficult time selling. I have considered reaching out to people with distressed homes in slightly nicer neighborhoods hoping to make a trade. As I understand it, it would be two separate transactions. However, I was hoping somebody would be able to provide some advantages or benefits to both parties involved in a house swap in particular tax consequences compared to traditional sale of homes. Thank You.
a “trade” is just another disposition to IRS.
since the first $500k of gain (joint) on the sale of a residence is excluded from income, it is unlikely that this would tax benefit someone who is selling (or trading) their residence.
as the seller (trader) of the investment property, it’s a flip, or ordinary business transaction. The house is considered inventory. As inventory, Section 1031 is not available and it’s a straight up sale/purchase transaction for you.
I don’t see any tax benefit in this scenario.