Can I Avoid Capital Gains But Quitting Claim?
I bought my house 2.5 year ago, I rented it for two years and lived in it for 6 months. This house has appreciated about 160,000 since I bought it.
SO I recently found a new property so I want to sell this one, I found out my aunt wants to buy it.
He loan agent was saying we could refinance the loan and I could add her name to the deed of the house, and then my aunt could give me the money out of the refinance.
If I keep my name on the title can I avoid paying capital gains since I would not be selling it? I would only be taking the assets and reinvesting them?
If she were to pull out 120,000 K during the refinance and give it to me to put down on the other house would I have to pay capital gains on that 120,000? If not how would i justify this income?
If I were to quit claim on the hosue later woudl I have to pay capitol gains on the money she would pull out? Becasue in theory I would not really be selling it to her...
You may create a number of issues by adding someone to your property using a quit claim deed. I would strongly suggest contacting a tax attorney or real estate attorney first.
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A CPA that used to work for the IRS told me that it would be ok to close the transaction in the individuals name and then place the property in the LLC via a quit cliam deed. Makes sense to me because the final title holder is the original title holder. Then the debt can be written off through the LLC schedules.
The answer is technically no - it will not work. The relinquished property was sold by a two member limited liability company (LLC), which is one distinct taxpaying entity, and the replacement property was acquired by an individual, which is another complete distinct taxpaying entity. Different taxpaying entities are involved. However, this is a common problem because lenders will not always lend to an LLC and it forces the investor to structure the transaction something like you have described. There is some case law that can give you some guidance and if you find yourself in this situation and have no choice, then you need to have your tax attorney or CPA try to structure your transaction as close to these cases as possible. However, just because a couple of cases allowed the structure does not mean that the IRS will always allow the structure and/or decide not to pursue your transaction. The technical issue is that the SAME taxpaying entity must sell the relinquished property and acquire the replacement property and have the INTENT to HOLD the properties as rental or investment. If the taxpaying entities are different, you run the risk that the service could disallow the transaction.
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I agree. Let me clarify by saying that both owners will buy the property and transfer the property to the LLC. I suggested only one buy but feel that if both owners purchase at the same time and hold title at the same time, transfer at the same time, etc. The IRS should overlook the chain of title timelime.
This is a complete above aboard transaction. Only problem being in the financing, especially wanting good rates.
jfoley, I understand what you are saying, but you must be careful. The proposed solution with the two investors buying together, etc., follows the fact pattern in one of the cases decided by the 9th circuit court, but the fact pattern was originally challenged and disallowed by the IRS and it took going to court to get the decision reversed. I never recommend a structure like this unless the investor is very sophisticated and has the ability to take a potentially aggressive position and understands the potential consequences.
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