Avoid Capital Gains Tax On House Owned But Now Rented
Q: I'm trying to find a legal way to avoid paying a relatively huge capital gains tax, when I eventually sell, on a property I had lived in for 13 years that I have been renting for the past 2 1/2 years. (I wish to continue to rent it for a few more years.)
As I understand it, if I rent for another year, then sell I have to pay the capital gains tax based on the basis of what I had bought it for 15 1/2 years ago (which in this case at 15% on a $150,000 gain is $22,500, plus California taxes)
I would like to know if I can do something like "sell" it now to myself or to a "corporation" I own and get the $150,000 profit tax free and then, from this point onwards, pay capital gains on any appreciation when I eventually really sell. I know because of proposition 13 my taxes would go up significantly but I think this is less significant than the eventual capital gains tax.
A: -Section 1031 (like-kind exchanges) would be the section that would allow you to defer your capital gains. While simple in theory, it can get complicated in practice. You're probably going to want to talk to an accountant or attorney who specializes in 1031 exchanges. - > I'm trying to find a legal way to avoid paying a relatively huge > capital gains tax, when I eventually sell, on a property I had lived in > for 13 years that I have been renting for the past 2 1/2 years. (I wish > to continue to rent it for a few more years.) > As I understand it, if I rent for another year, then sell I have to pay > the capital gains tax based on the basis of what I had bought it for 15 > 1/2 years ago (which in this case at 15% on a $150,000 gain is $22,500, > plus California taxes) Your basis is the purchase cost, plus any improvements you made over the years, less the depreciation taken during the rental years. > I would like to know if I can do something like "sell" it