Capital Gains Exclusion Home Sale will be 5 YEARS instead of 2!!!

5 Replies

No on seems to be talking about this.  But as of January 1, 2018 the new Tax Overhaul Bill will substantially increase the requirement to live in a home from 2 years to 5 years in order to qualify for the capital gains exclusion on primary home sale ($250,000 Single Filer/ $500,000 Married).

We have lived in our home 2.5 years and will be selling it in January 2018. Are there any creative (and legal) ways to avoid the change in 2018 from taking away our capital gains exclusion? Please do not suggest staying 5 years. Anything creative that would work like possibly transferring to a trust or LLC this year to establish gain in 2017 rather than 2018?

Much appreciated!

This is assuming the current version of the senate bill passes, but if the property is under contract before Jan 1, then it falls under the current 2 in 5 year rule.

And every real estate lobbying group is talking about it...NAR, NAHB etc.

@William Behm

Actually, a lot of people are talking about it. That is - assuming that the tax reform does happen.

It is very possible that there will be some transition period or a phase-in or some kind of partial exclusion for people in your situation. Of course, nobody knows as of today.

One way to protect your deduction is to sell in December. If you need to stay for another month, you can possibly lease it back from the buyer.

You can also try to sell it temporarily to a friendly party, including an entity. You need to be careful that the sale is "arms-length" and is not just a smoke screen. The purchasing party must have an unrestricted right to resell the property, to evict you etc. I would not do it without consulting a good real estate attorney.

Originally posted by @Michael Plaks :

@Russell Brazil

Are you sure that "under contract" is enough of the safe harbor?

 It is specifically mentioned in the senate version of the bill.  I posted the info on it the other day...if I recall it is on page 82 of the bill, but Im not 100% sure that was the page number.

@William Behm one way you can avoid capital gains tax is converting to rental property and eventually do a 1031 exchange. The tax bill does not making any changes to the 1031 requirements as far as I’ve heard.