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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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Capital Gains on Income Propery

Customer Question

My husbban is 62 & I am 59. If we sold income property do we get a lower rate of capital gains on that property?
How can we avoid capital gains on income propery?
We own a 2-family income propery in Everett, MA. There is only 1 apartment rented for $200. a month for our daughter.
If we sell that property do we get a tax break percentage at our age?
If not how can we avoid paying capital gains on this income property?

Thank,
Denise
Submitted: 11 years ago.
Category: Tax
Expert:  Jon Andrews replied 11 years ago.

There are no "age-based" breaks for selling property.


The only legal method for avoiding the capital gains tax is to do a 1031 exchange where the money from the sale of that property is used to purchase a new rental or investment property. 


This only works if you desire to remain in the landlord business. If you are ready to "cash out", you are going to have to pay the tax. The tax will be a maximum of 25% on the depreciation recapture and a maximum of 15% on the capital gain. These amounts are subject to change based on your specific circumstances.


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Customer: replied 11 years ago.
Reply to Jon Andrews's Post: Isn't there something called a Starker exchange we could do? We could sell our rental property and buy residential property with 45 days. I'm not sure about this, but I think we have to first rent the residential property (for how long)and (at what rent), then we could avoid capital gains, yes?
Expert:  Jon Andrews replied 11 years ago.

Starker exchange is another name for 1031 exchange so, yes that is correct.


There is no magical time frame for how long you have to rent it before you can move in to it as your residence but I always suggest at least a year. The rent charged during that time should be "market rate" and should not be a relative.


The worst thing you could do would be to set all this up and then have the whole thing disallowed because you rented it for sub-market rate to a relative. Then you would wind up owing taxes, interest, and possibly penalties.


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