Try this, after checking with attorney - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on June 27, 2003 at 21:03:01:
Actually, after three years you would lose the $250K/person capital gains exclusion on federal taxes.
I think you have to make up your mind. Do you want to convert this to a rental or not? If yes, you will forgo the tax exclusion.
Now, one possibliity would be to sell the property and take the capital gains exclusion. Then buy a different property as a rental and rent to whomever you choose, including the relatives.
You might run this one past an attorney and tax CPA: You sell the property to the relatives with virtually no money down. This gives you an exclusion from capital gains tax. The relatives later resell to you at the same price you sold to them. No gain for them, thus no capital gains tax. You now have a new basis in the property which is the value at the time that you sold to them. Hmmm. If this were higher than the apparent market value at the time you sold to them, some of your future appreciation would be sheltered by this higher price. Hommm. Talk with some professionals before you try it. I’m not an attorney, I’m not the CPA, that’s my brother Roger, in OR.
If the relatives lived in it for over two years while being the owners, they could resell to you for whatever price you could agree upon. The would have no capital gains tax because of the homeowner sale exclusion. You would own the propety at a higher basis, perhaps even higher than the apparent market value.
Good InvestingRon Starr***