"cost more than the profit made"
Not "Profit." Equity. Otherwise, if the total equity isn't invested in the new property, that difference is considered to be the taxable portion. Example, using Lisa's example:
You buy for $200k and sell for $500k. You decide not to buy again for $500k, but to keep $100k and buy using the $400k remainder. You just took capital gains of $100k. Even though you "made a profit" of $300k and bought something higher than this amount, the IRS considered the taking (up to your basis) as you taking the taxable amount as First Out.
"Level Up" is a gaming function, not a real life function.
The selling price of the relinquished property is the starting for a 1031 computation. However, the property must be a business property, so it does not apply to your home, for example. If the relinquished property is not already a business property, you might consider converting it before the sale.
If the replacement property costs more the that selling price, the exchange is totally tax free and the basis of the replacement property is adjusted down for the "profit" deferred on that original sale.
If the replacement property costs less than that selling price, you have "boot." Your boot is taxable to the extent of gain deferred from the sales transaction.
The exchange process can be a forward or a reverse exchange and strict timelines must be observed.
If the property is in the OPPORTUNITY ZONE only the gains need to be reinvested to defer taxation.
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