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Capital Gain Taxes Looming, Trying to qualify for the $250,000 to $500,000 tax exemption.

Orcutt, CA |

I this following question but I failed to mention the sellers of the property never lived the the primary dwelling residence for over twenty years, will this mess up the previous response to our tax-man's to push our tax plan to avoid capital gains taxes?

I sold 10 acres in February 2013, the remaining land on the deed is 12 acres. Daughter recommend using a local tax man (non-C.P.A.) who created this idea. He said we could create a partnership where I control 40% and my kids control 60%. I will be allowed to keep a property loan in my name for the next ten years, controlling all finances and borrow against the property.

Will this float past the IRS? The gain is $680,000 and with some creative cost-basis methods we got the property's gain down to $500,000. I like the idea of selling the property and keeping it at the same time. Will the IRS allow me to claim the full $500,000 tax exemption by selling 60% to my kids? The Tax-Man think's this is the best way to avoid taxes on my long-term home.

Additional information
The "tax man" said to sell my residence on the property and carry all the paper of the note. Do you see any easily identifiable issues with selling the house and keeping my property (borrowing against the sold property to build a new house, and keeping a home equity loan in my name only.) and doing some accounting moves to avoid paying any taxes. I hate paying taxes and have not paid any in years, I don't want any penalties though, if I can have my cake and eat it too, is there anything wrong with the "tax man's" idea?

Can the IRS say I have not sold my property if I keep a 40% controlling interest in it but tell the IRS I sold it? Is there a method to keep my property and take advantage of the "One Time Capital Gain" exemption rule?
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Attorney answers 3


This is a CPA, not an attorney, question. Ask your accountant. With that said, the $250/500K rule applies to personal residences that you have lived in for 2 of the past 5 years. Doesn't sound like that applies here. You may want to talk with your CPA about the possibility of a 1031 exchange - then you can defer the taxes.

Actively practicing law in Texas. Inactive licenses in Arizona and Georgia. All answers are general in nature and no attorney/client relationship exists in this forum.


I would be extremely wary of relying on the advice of a non-CPA as to the course of action that you should pursue. Based upon the facts the you have outlined (which are quite confusing), it appears that you will not qualify for the $250,000/$500,000 capital gains tax exemption because the property that you are selling has not been your principal residence for at least 2 of the last 5 years. I also would be very careful about structuring the sales transaction so that you still retain an ownership interest in the remaining property, as the IRS could disregard the "sale."

I suggest that you consult an experienced tax planning lawyer in your area as to how you can lawfully structure this transaction in order to minimize your tax exposure. To paraphrase Justice Oliver Wendell Holmes: "Tax avoidance is patriotic but tax evasion is criminal." As my colleague has explained, you may be able to arrange for a "like-kind" exchange of your property for a similar property under IRC Sec. 1031.

The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.


You really need to employ either a tax attorney, enrolled agent or CPA before you move forward with making
changes. I agree with all both attorneys have said, but will add the following "cautionary" considerations;
By adding your children, you also may expose your property to any liens, creditors, etc. of the children. Here,
an attorney would be best suited for advice.
You may also now need to file a partnership tax return...A "qualified" advisor will be able to through
all the pros, cons, and costs with you.

Answers are intended as general information and may not be used as legal or tax advice. An attorney/client relationship is not formed nor inferred. PURSUANT TO TREASURY REGULATIONS (IRS CIRCULAR 230) YOU ARE HEREBY ADVISED any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or other taxing authority or (ii) promoting, marketing or recommending to another person any tax-related matter addressed herein.