Capital gains
My parents who are in the upper 80’s who purchased a 3 flat in Illinois, they lived there for 10 years. They bought it in the 1960’s new construction. They have been renting it out ever since. Wondering if they were to sell it how to avoid as much capital gains tax as possible if not all. Dad 87 mom 86. As far as we know, the only way to avoid capital gains is to sell it and invest in another property of higher value. We would prefer not to do that.
Terry Says
No, they can’t avoid taxes by doing that. There is such a thing as a “like-kind” exchange —but that would keep them deeply involved in real estate. And since this is not their primary residence, they do not get the homeowners exemption.
One way to reduce capital gains taxes is to total up all the costs of improvements over the years. Doing so would reduce their capital gains taxes. BUT, if it is still a big gain, it would add to income for the year, and could increase their Medicare Part B and D premiums. YOu should discuss all these possibilities with an accountant.
OK, one more thing to say– which is a bit morbid, but is also a response to your question: If they die while owning the building, there would be NO capital gains tax, because under current tax law the asset gets a “step-up” in cost basis to the value on date of death. Something else to discuss with your accountant and their estate-planning attorney.
