Section 121 excludes up to $250,000 of gain, or $500,000 for certain married couples filing jointly, on the sale of a primary residence, with no requirement to reinvest. A 1031 exchange defers gain on investment property by reinvesting in another qualifying property, so the tax is postponed rather than eliminated. The conversion strategy leans on Section 121 for the residence portion, and depreciation recapture applies either way.
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