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Ray
Ray, Lawyer
Category: Legal
Satisfied Customers: 37036
Experience:  30 years in civil, probate, real estate, elder law
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I'm interested in selling my home, it has a very large profit

Customer Question

I'm interested in selling my home, it has a very large profit from when we bought the house to today, I have a number of friends now renting their property for between 6-12 months and then plan on selling the home and avoiding capital gains..is this legal if only 6 months and we use the current base of the house from the time we rented it to the time we sell it as opposed to the base when we bought it. I hope I am making sense.
Thanks
Jan
Submitted: 7 months ago.
Category: Legal
Expert:  Ray replied 7 months ago.
Hi and welcome to JA. Ray here to help you today.
Expert:  Ray replied 7 months ago.
You can do a 1031 exchange here to avoid capital gains.This involves having your CPA help you locate another property so you sell one and exchange it within the time frames for another one.This may be what your friends are doing. Reference http://homeguides.sfgate.com/sell-rental-property-not-pay-capital-gains-39301.html
Expert:  Ray replied 7 months ago.
Here the IRS allows you to sell one investment and reinvest the proceeds without taxation. Here a swap must be a "like-kind" exchange, but the IRS is relatively lenient about this with regard to real estate. You don't have to exchange your three-bedroom rental property for another three-bedroom rental property. You can sell your rental home and buy undeveloped farmland or even a commercial strip mall if you like, as long as the asset on both ends of the exchange is real property and both are located in the United States. This rule only applies to investment properties. Know that here You don't have forever to pull off the swap , you have less than a year. First, you must find another piece of suitable real estate within 45 days after the sale of your first property. Then you must commit to the purchase in writing, not with the seller but with a disinterested third party who acts as an intermediary. In tax terms, disinterested means he cannot have any sort of business relationship with you, such if he has acted as your real estate agent, your accountant or your attorney. The 45-day deadline runs concurrently with a six-month deadline. Within 180 days, you must close on the new property. If your tax return for the year in which you sold your rental property is due before this six months elapses, you don't have the entire 180 days to close. The deadline cuts off when your tax return is due, but it includes any extensions you take. Assuming you act in time and meet these deadlines, you won't owe capital gains tax on the sale of your property.
Expert:  Ray replied 7 months ago.
You need to do some planning here with your CPA and a realtor because the time window is pretty short, but you can certainly do an exchange and save some taxes here.
Expert:  Ray replied 7 months ago.
I appreciate the chance to help you today.Thanks again. If you can positive rate when we are done it is always much appreciated.