Help me understand 1031 EXCHANGE?

I owned my duplex for 7 yrs. I lived in it for about 8 months and met a fella and moved in his house and rented out both apts. I live in NH. I heard if i want to get any money out of the sale of the duplex I'll have to pay capital gains on the intire amount being it is an investment property due to me not living in it for 2 yrs. OR, I can do a 1031 exchange. I paid $85,000 7 yrs ago, owe $61,000 now. It's on the market for $249,900 since yesterday. My friend said if I don't want to pay big $ on capital gains I can reinvest the money on more income property. But I will have to pay 7 1/2 per cent to the state of NH for stamps ( a rip off), 5% to the real estate lady and $61,000 I still owe on it to the bank. My friend said I can deduct the stamps and RE commision .Is it true I will have to reinvest in more income property for the full sales amount? How can I buy with money I made with out a mortage? I want to buy but if i buy for full sales amount I will not be able to afford the mortage

Your pretty much correct.

Here is a link to my 1031 exchange site that I'm creating:
http://www.nnnstore.com soon to be http://www.1031store.com

You will find good general information about 1031 exchanges, especially on the first page.

Here is a link to my capital gains calculator:
http://www.nnnstore.com/1031_capital_gai... soon to be:
http://www.1031store.com/1031_capital_ga...

This will help you figure out your total capital gain due. NH is a no capital gains state. I calculate that you will owe $15,300 in capital gains taxes.

This figure could change if you depreciated the property or add in capital improvements.

To defer all capital gains taxes, 1031 exchanges are the way to go. You will need to replace all debt & equity of your sale by purchasing another investment property.

You may do a partial 1031 exchange, reinvesting some of the proceeds and taking the gain on the rest(known as 'boot').

A good title company should be able to help explain 1031 exchanges further, and also act as your accomodator for the exchange.

You ARE confused.

Ok, first you RE agent should help u on this
Second the Title company who will do the transfer should help you on this
Thirdly you can google this, about.com has some good articles on this as well.

Now, did you report your primary residence as a rental to the gov? If not you might be in trouble.

Or you might not, it depends.

fAlso check out irs.gov, on the left side column click on individuals and then choose capital gain.

Its pretty detailed. there are state to state differeces so you might hit the state's website as well.

you can also call the IRS anonymously and ask them.

You sound pretty young, not an insult, so you might consider depositing the $ into a ROTH account I believe that is tax dedductible but check it out.