Profit on remodel home 20k Help with tax info please!?

Question

I will be finishing a remodel of a home this year.I bought it for a weekend fixer up. MY profit is 20K. I know with capital gains the tax will be terrible. I would like to know if I can take the 20K and add 15K to buy a next door neighbors house (junky dump) and use it for a barn and storage.I will clean up the place for improving an eyesore. Will investing my profit back into appreciation of my property adding this home (will be a barn) get me out of capital gains for the original 20k profit? Will spending 35k on my property help me with my overall taxes at the end of the year? I will have a need for the barn for future remodels storing lumber,and supplies etc..

Answer 1

Possibly you can 1031 exchange into the new property (essentially this is a property exchange where taxes are deferred until you sell the newly purchased property) and avoid the tax.  Still to do a tax-deferred exchange the property being bought must be the same kind of property as the one being sold.  The IRS doesn't clarify very well what "same kind" means, but it still doesn't sound like this is the case.

Beyond that chance I think you will just have to pay the taxes, and that one is real marginal.