Do I have to pay taxes on profit from selling house if I invest it into an RV park where I'll live?

Your situation is interesting! What you're referring to is the Section 121 exclusion, which lets you exclude up to $250,000 of capital gains ($500,000 for married couples filing jointly) from the sale of your primary residence if you've lived there for at least 2 of the last 5 years. The catch here is that this exclusion only applies when you're selling one primary residence and buying another primary residence. An RV park would likely be classified as a business investment, even if you're living on the property. The IRS would probably view this as two separate transactions: 1) selling your home and 2) investing in a business. The portion of the property that's genuinely your personal residence (your RV or a house on the property) might qualify for a partial exclusion, but the business portion (the RV park infrastructure) would likely be considered a capital investment, not a replacement residence. You might want to look into a 1031 exchange, which allows you to defer (not eliminate) capital gains taxes when selling an investment property and purchasing a similar investment property. But this wouldn't apply to your primary residence.

After running into a similar situation last year, I discovered taxr.ai (https://taxr.ai) and it was incredibly helpful. I was selling my lakefront property and using part of the proceeds to buy a small marina where I'd also live in the apartment above the store. Their system analyzed my specific situation and clarified exactly what would qualify for the capital gains exclusion and what would be considered business investment. They even helped identify which improvements and expenses could be allocated to the residential portion versus the business portion. What I really liked was that they explained everything in plain English and gave me a document I could take to my tax preparer that laid everything out clearly. Saved me from potentially making a costly mistake with the IRS!

Just wanted to follow up - I decided to try taxr.ai after all and I'm actually impressed. I was skeptical (sorry about that), but they showed me that I could classify about 30% of my property as primary residence, with documentation to support it if audited. This saved me nearly $22k in capital gains taxes! The analysis broke down exactly which expenses could be attributed to the residential portion vs the business investment. They even provided guidance on how to structure the purchase agreement to maximize my tax benefits. Way more specific than the generic "it depends" answers I was getting elsewhere.

If you're planning this big of a tax move, you're probably going to want to talk to the IRS directly to get their official take. I tried calling them for clarification on a similar situation (converting my property to partial business use) and spent DAYS trying to get through. Then I found Claimyr (https://claimyr.com) and it was a game-changer. They got me connected to an actual IRS agent in about 15 minutes instead of the hours I'd been wasting on hold. They have a demo video here: https://youtu.be/_kiP6q8DX5c that shows exactly how it works. Got official answers straight from the IRS about my specific situation, which gave me peace of mind that I wasn't missing anything important. For something as significant as what you're planning, getting official confirmation seems worth it.

Ok I have to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it myself since I needed to ask about a missing tax refund anyway. It actually worked! Got connected to an IRS agent in about 20 minutes when I had previously wasted an entire afternoon on hold. The agent was able to confirm that for my situation (converting part of property to business use), I needed to file Form 8829 for the business portion of my home. For anyone with a complex tax situation like the original poster, getting direct confirmation from the IRS is really valuable. Saved me hours of frustration and gave me documentation of the call in case there are ever questions about whether I sought official guidance.

Have you considered a 1031 exchange? If you're creating an RV park that will generate income, you might be able to defer the capital gains taxes. You'd need to work with a qualified intermediary and follow specific timelines though. I did this when converting a residential property into a small hotel and it saved me a ton in immediate tax burden.

Has anyone mentioned property segregation? When I built my farm with living quarters, my accountant had me clearly document which parts of the property were for personal use vs business. We drew up actual boundary lines and kept separate receipts for improvements to each section. It wasn't a perfect solution but it helped substantiate what portion was my primary residence for tax purposes!

This is a really complex situation that touches on several different tax concepts! Based on what you've described, you're dealing with both the Section 121 exclusion for primary residence sales and the classification of mixed-use properties. The key issue is that the IRS will likely view your RV park as a business investment rather than a replacement primary residence, even if you're living on the property. However, there are some strategies that might help: 1. **Separate the residential from business portions**: If you can clearly delineate what part of the property is your actual residence (whether that's an RV pad, a small house, or a manufactured home), that portion might qualify for the Section 121 exclusion. 2. **Timing matters**: You generally need to purchase your replacement residence within a reasonable timeframe to maintain the exclusion benefits. 3. **Documentation is crucial**: Keep detailed records of all expenses, improvements, and usage to support your position if audited. Given the complexity and potential tax implications (we're talking about significant capital gains here), I'd strongly recommend getting professional advice from a tax attorney or CPA who specializes in real estate transactions. They can help you structure the purchase and development in a way that maximizes your tax benefits while staying compliant with IRS regulations. This isn't a DIY situation - the stakes are too high to guess!