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Looming Capital Gains scare me, can I keep my property and still tell the IRS I sold it?

Orcutt, CA |

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.

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

Posted

Lying to the IRS is a horrible idea. Using a non-lawyer non-CPA for tax advice is a worse idea.

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

Posted

There is so much wrong with the "tax man's" idea, I don't even know where to begin. The actions sound potentially criminal and could be construed as tax evasion. I highly suggest that you speak with a tax attorney and discuss what legitimate actions can be taken in order to mitigate your tax liability (e.g., charitable contributions, etc.).

This material does not constitute tax, legal or accounting advice. It was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding any IRS or NYS penalty. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. This response is not intended to create, and does not create, an attorney-client relationship between you and the author.

Richard Gordon Stack

Richard Gordon Stack

Posted

With regard to the issue of charitable contributions, if your property is in the countryside, you may be able to grant a conservation easement as to part of your property to an appropriate authority (i.e., State, county, non-profit conservation organization) so as to minimize your taxable sales proceeds. In doing so, however, you need to consult with an expert land-use/tax planning attorney because this is a tricky and rapidly evolving area of the tax laws.

Posted

If you sold 10 acres in February, 2013, then that is a completed transaction on which you must calculate your taxable gain. If you want to create a partnership and contribute the remaining 12 acres to the partnership, there is nothing wrong with that. Of course, if the property is in the partnership, the loan should also be in the name of the partnership. Beyond that, I am unclear on your facts. Was the gain $680,000 on the 10 acres? If so, that is a reportable, taxable gain. As for the "full $500,000 tax exemption," I believe you are referring to the $250,000 per person exclusion for selling a principal residence. Does the 10 acres qualify as a principal residence for you and your wife?