Be Content With the Existing Tax Breaks
Question: I bought my home many years ago for about $55,000. Today, it isworth more than $450,000 because it is in a high-demand neighborhood. IfI sell, I will owe a huge capital gain tax. Is there any way to avoidpaying tax on my profit exceeding $250,000 (I am single, never married)?
Answer: Many sellers would love to have your “problem” of a $345,000capital gain with a $250,000 principal residence exemption and only a$95,000 taxable long-term capital gain. With the federal long-termcapital gains tax rate of just 20%, plus any state taxes, you are in anenviable position.
The only way to avoid tax on that $95,000 profit exceeding your$250,000 home-sale exemption would be to:
(a) convert your home to arental property,
(b) make a Starker delayed tax-deferred exchange underInternal Revenue Code 1031(a)(3),
(c) have the proceeds held in trustbeyond your constructive receipt and
(d) use the money to acquire aqualifying rental property of equal or greater cost.
Do you want to go through all that hassle just to save capital gainstax on $95,000? I don’t think so. Pay the tax and be happy. For moredetails, please consult your tax advisor.
Letters and comments to Robert J. Bruss, a San Francisco-area lawyer,author and real estate broker, may be sent to P.O. Box 280038, SanFrancisco, CA 94128. Bruss suggests consulting an attorney or tax advisorbefore making important real estate decisions.
