I want to sell my condo and use the gains to buy another property. How can I avoid capital gains tax?
Assuming your condo is your primary residence and not an investment property, you simply sell it and use the proceeds to purchase the next place where you intend to live. If the new place is more expensive, it’s simply a rollover. If it’s less, you don’t have to pay capital gains on the first $250,000 in gains ($500,000 if married). If it is an investment property, then you should consider a 1031 exchange. If you sell it and simply keep the cash, you will owe a capital gains tax unless you do certain things approved by the IRS (e.g. private annuity trust, incorporate etc.) Getting someone to do this type of alternative might be costly, but you should hire a professional as you must strictly adhere to IRS guidelines.
Unfortunately the 1031 exchange is not the best way to avoid capital gains. What the 1031 exchange companies fail to point out is when using a 1031 you get caught in a buying cycle meaning you have a deadline of 45 days to re-invest in another property or you have to pay the full amount in taxes. Since the 1031 is only a “deferment” of taxes, not an avoidance, eventually you will have to pay all of the taxes you owe. So what if you want to stop investing in real estate or you can’t find a like kind property in 45 days? All of the taxes you’ve deferred since you’ve started the 1031 come flooding back to you. There is another way that doesn’t require you to meet the 45 day deadline and in some cases completely eliminate capital gains tax. Our company Priority Services Group has developed a program that allows you to take advantage of the little known 351 transfer. By transferring all of your real estate into a corporation you are not required to meet a deadline of deferment because it is
The payment of income taxes on the disposition of real estate is completely voluntary! The Section 1031 exchange is the most underutilized part of the tax law. That’s truly sad as it offers the most significant savings. It could be a name problem-calling it an “exchange.” People think exchange during the holidays when they stand in line to return and replace to return and replace the sweater than did not fit. The tax law “exchange” might get a lot more attention if lawmakers called it a “rollover” because that’s what you accomplish with Section 1031. You rollover the gain to the new property. You can continue the rollover of gain and postponement of tax with successive exchanges (stemming from the original property you relinquished), provided a one year holding period exists with the replacement property. The postponement of taxes turns into the cancellation of taxes to the extent that the property get a set-up in basis at date of death.[i] For example, you buy land for $50,000. It gro
