What are some ways a retired person can sell a rental house and minimize capital gains taxes? Will I have to pay the capital gains taxes if I sell the house for a low down payment and let the buyer pay me (or my estate) about $100 monthly?
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Anonymous
ANSWERS: 3
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In the U.S. you are allowed to sell one residence in your lifetime, without paying capital gains tax. You are only allowed ONE in your lifetime, so be choosey.
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As I understand it, the only way to avoid Capital Gains tax is to live in the house before you sell it (I'm not sure how long). You can also roll over proceeds of the house into a new rental property (starker exchange) -- there's a time limit for that. Your capital gain is your net proceeds from the sale, less your basis. Financing the buyer has no effect on this formula, that's just a loan, for which you will have to pay tax on the interest earned.
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There's no limit on the number of times you can use the home-sale exemption. In most cases, you can make tax-free profits of $250,000 (or $500,000 depending on your filing status) every time you sell a home. First, the property you're selling must be your principal residence. That means you live in it. You can, however, turn a rental house into your primary residence, making the sale of it eligible for the exclusion. This is accomplished when you meet the IRS use and ownership tests: You own and live in the home for two out of the five years before the sale. The plan you are thinking of involves not really selling the house (no change of deed) until the end of the payment contract, you keep the ownership in your name. However, a buyer would be crazy to agree to it. Also, you would still have to pay the tax in the end.
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