Sellers Capital Gains Problem - Posted by Greg

Posted by Tom – IN on August 04, 2001 at 22:23:12:

Has he ever lived in this house? If so, does he meet the 2 out of 5 rule?

Sellers Capital Gains Problem - Posted by Greg

Posted by Greg on August 04, 2001 at 14:46:32:

I have someone who will sell me his free and clear house
if I can mitigate his Capital Gains tax.

Besides a 1031 exchange is there another solution?
What if he carries the 1st? Does that help?

And if 1031 is the best solution, what do I need to do to
help set that up?


Re: Sellers Capital Gains Problem - Posted by Ronald * Starr

Posted by Ronald * Starr on August 06, 2001 at 21:48:00:


Frank Chin had an interesting post in about Feb or March of this year, I believe. Try to find.

The idea is to do a very long-term lease with the property owner and have an option to buy in the future. Then the owner can deduct expenses of holding the property and depreciate the property if it has not already been completely depreciated. The rental income is taxable, of course. But hopefully it does not throw the owner into too high a tax bracket. When the owner dies, the leased property can pass to a heir, with a step-up in basis so that there is lttle or no capital gains and thus littl or no capital gains tax due. At least for the next few years. I understand compassionate conservative and congressional folk will phase out step-up in basis in a few years. Thanks, C.C. and C. F.

Also, if the owner has not concern about leaving the property to heirs, there is such a thing as a Charitable remainder trust. I posted about this last week. Just use the search function with that phrase to learn more about it.

Good InvestingRon Starr*****

Re: Sellers Capital Gains Problem - Posted by KennS

Posted by KennS on August 04, 2001 at 23:10:45:

If it is his primary residence (for two out of the last five years), he would have to pay no taxes (in most cases).

If it is an income property, he can do a 1031 or an installment sale (this would spread out his tax hit and may keep him in a lower tax bracket).

If you want to get real complicated, he could refi and pull his cash out (instead of you buying it), then throw it in a trust and gift you a % interest in the property each year (10-40k of value- see accountant) until you were a 100% beneficiary. Keep in mind, you would essentially inherit his cost basis on the property (see you accountant for the details). This would leave you in the same predicament (sp?)he is currently in when you go to sell.

  • Kenn