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Avoiding Taxes |
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is there a way to avoid capital gain taxes on a 2 family residence sale - I have owned it for 20 years and it is very depreciated......
Thanks
Mike |
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The only way I know of to avoid capital gains tax is to die. Your heirs receive the property with a new "stepped-up' cost bais, value at the time of your death.
If you're not interested in doing that, there are a couple of ways to at least postpone payment:
The first is to take back a mortgage as part of the purchase price. You'll pay tax on your profit only year by year, as you collect it through the mortgage payments. (The interest portion of your payments will be taxable as ordinary income, just as any interest income would be.)
There's no guarantee, of course, that you'd be paying at today's favorable rates in years to come. You know the difference between death and taxes: death doesn't change every time Congress meets.
Another possbility is to enter into a tax-deferred exchange, which must be planned and documented correctly in advance. Again, you don't avoid tax but you do postpone it indefinitely. It would work if you wanted to re-invest the proceeds in some other rental property. It involves exact time limits and paperwork. You'd need the guidance of a broker, lawyer or accountant who is qualified as a Section 1031 intermediary.
About capital gains tax: long-term rates are currently favorable, no more than 15 percent federal. But as you realize, the larger part of your profit represents the "recapture" of depreciation you deducted as an expense all these years, and that portion of your gain is taxable at 25 percent.
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Edith
Originally published on July 7, 2008 |
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