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by Winford Dixon on February 7th, 2005

Winford Dixon

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I want to sell my condo and use the gains to buy another property. How can I avoid capital gains tax?

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Answers. 4 helpful answers below.

  • by Sosueme on August 7th, 2007

    Sosueme

    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.

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  • by psgllc on August 7th, 2007

    psgllc

    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 considered normal business expenses.

    When doing business through a corporation it provides you all the benefits of deduction allowing you to potentially eliminate capital gains tax and give you the freedom to re-invest by the end of the fiscal year, not 45 days. If you manage to zero out at the end of the fiscal year, you pay nothing to the IRS and still retain all of your investment property.

    If you'd like to learn more about our Escrow Program and how Priority Services Group can help you, visit our website at www.priorityservicellc.com.

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  • by Smartypants on March 4th, 2005

    Smartypants

    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 grows in value. You exchange it for land worth $130,000. At the date of your death, the land has grown in value to $300,000. It transfer to your heirs at $300,000 (its stepped-up basis). The increase in value from the original $50,000 through the $130,000 exchange and including the increase to $300,000 its not subject to income taxes under the stepped up basis concept


    GOTO http://www.1031exchangetax.com/1031nutshell.htm
    for a great article and info on the 1031 tax law


    Taken from
    Section 1031 Exchanges in a Nutshell* By Peter A. Karl, III
    *An article published in the August 2002
    issue of the Tax Reduction Letter published by
    Bradford & Company (1-877-829-9673)

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  • by wexeter on December 26th, 2009

    wexeter

    You can also consider a Deferred Sales Trust should you not want to reinvest into replacement property. The Deferred Sales Trust is appropriate when a taxpayer does not want to reinvest in other real estate or the gain significantly exceeds the $250,000/$500,000 tax free exclusion limitations on the sale of your primary residence. Learn more here: http://www.exeter1031.com/deferred_sales_trust.aspx

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