Posted by William Bronchick on February 06, 2002 at 22:25:57:
No - the tax rules state that you have to have made this home your personal residence 2 of the last 5 years. There have been court cases that held a taxpayer can rent his property without changing its character to a rental if he could not sell it, which is your case.
Another Property Transfer Question - Posted by Phil (CO)
Posted by Phil (CO) on February 06, 2002 at 10:44:28:
This is my situation:
I recently moved from Houston to Denver. Haven’t been able to sell my home in Houston, thus couldn’t really afford to buy a comfortable home in Denver (prices are crazy here). So, my wife and I decided that rather than throw our money away in rent, we would buy a small condo that we can afford, live in it until we sell the Houston house, then buy a comfortable home in Denver and keep the condo as a rental.
Great plan? I’m not so sure now.
Reason is, we decided to rent the Houston home at way under market value under the condition that the tenant would keep the house in good order (it’s still on the market), and that they would have to vacate if the house is sold. Incidently, once my contract expires with my broker I am going to attempt to L/O the house.
My question is this, now that I am renting the Houston house, have I lost the tax benefits of selling my “personal residence”? I hope not because then I just traded $7,800 in rental income for about $11,000 in taxes. My hope, of course, is that when I sell the Houston house I can just take the profit and use it to buy a house in Denver and pay no capital gains tax.
Assuming I’m screwed, how does this plan sound:
The house is on the market for $189k. I sell the house to my REI corp. subject to for $170k so that the capital gains tax is reduced. (I can justify the lower sales price because the house has stucco issues - if you live in Houston you know what I’m talking about!). Then when the corp sells the house via L/O or CFD or whatever, the corp will only pay the 15% corporate tax on the deal and I can use the profit for other REI. This doesn’t solve my need for cash to buy another home in Denver, but I can find ways around that now that I know a lot more about creative REI.