Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev | Next
Author: edgynewparts Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121144  
Subject: $500,000 Home Sale Exclusion Date: 5/2/2004 6:18 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I am approaching the point where my house is worth about $500,000 more than my wife and I paid for it. I have a trusted friend who is in the same position.

IRS Publication 523 states that "You cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude the gain, you must include it in your income."

Thus, it appears to me that the $500,000 exclusion for capital gains can be used more than once as long as there is 2 years between the times that the exclusion is used. If that is true, what prevents my friend and me from selling our houses to each other in legitimately documented sales with title transfers, then renting our respective houses to each other (we each become the other's landlord). We then can each take the $500,000 exclusion on the gain. After 6 months or a year, we each sell our houses back to the other for what we paid. We then have a new basis and, if we stay in the houses for another two years after that, we can utilize the exclusion again if either of us finds it necessary to sell. Ignoring transaction costs, it seems to me to be a way to shelter the gain once you reach the limit of the exemption but do not intend to actually move out of your house. Even if one or the other were forced to sell within two years after that, he is no worse off, again ignoring transaction costs, than if the transaction had not taken place.

Is there something I am missing? It seems that if the sales are structured legitimately between non-related parties, it complies with the letter of the law, which I understand is what is required by the tax code.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev | Next

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
Post of the Day:
Macro Economics

U.S. Stable, Europe Stalling
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement