Close…but no cigar. - Posted by soapymac
Posted by soapymac on June 07, 2000 at 14:08:15:
7.5% MONTHLY??? I hope you meant annually.
“He wants to do it this way because he says for the 2 years I continue to pay rent, this property will be considered a second home for him. That way when the title is transfered, he won’t have to pay capital gains on the sale.”
The gentlemen does not understand the law here. In order for him to not pay captial gains on the transaction, he would have had to have PERSONALLY occupied the home for two of the last five years. So he gets the utilities transferred to his name, but you continue to pay them. Whose credit does that help? And isn’t he a trusting soul?
You’ve been there two years…now he wants to “live” there on paper for two years to avoid the capital gains tax. Where is he living now? Isn’t he claiming an interest deduction on the place where he’s living? And does he expect to “skate” through the IRS computers when they catch him with TWO PRIMARY RESIDENCES? As David Krulac asks below, “Can you say fraud and tax evasion?” I would ask another question:
Do you want to sully your character and reputation by being an accessory to this scheme? I thought not.
That being said, let me point you to an avenue where you can still L/O the house, keep the utilities in YOUR name, and bypass the capital gains problem.
It’s called a 1031 exchange. I do not know exactly how this works (haven’t had to do one yet,) but I understand the principle as it is used with life insurance contracts (where it is called a 1035 exchange.)
You may want to ask for assistance from a RE attorney on how to structure this. There are also RE Brokers who specialized in this type of transaction.