Q: I want to sell two rental properties, but I do not want to pay any capital gains. Do I have an option besides a 1031 tax-free exchange? And if so, what is it?
A: There are a few scenarios that would allow you to sell your properties without paying all of the capital gains tax that you would ordinarily owe.
First, if you sell the properties for a loss, you won’t owe any tax. If you plan to move into one of the properties for two years as your primary residence, you’ll be able to shelter some of the profits from the sale. After two years, you could sell that property and move to your other rental property as a primary residence for 2 years. In each instance, there may be other taxes that you may owe, but you should be able to avoid paying tax on your capital gains up to $250,000 if you are single and up to $500,000 if you are married.
Your third option would be to give away the properties to a tax-exempt organization and take a tax-write off for the full market value. Of course, you’d want to use the write-off if you have a taxable gain you want to offset.
But unless you’re selling at a loss, move into the property for 2 years, or plan to donate the property, I’m out of ideas.
Please talk to your accountant or tax advisor about other options that may be available to you.