My wife and I own a condo in San Diego. We are planning on upgrading to a "real" house soon when kids come. We are going to hold onto our condo when we move.
I see that we don't pay capital gains if we have lived in the home for two of the last five years. That is great! However, we'd like to own the condo for a very long time. Since California has very large gains I really don't want to pay taxes on all the gains.
Is there a way to have my cake and eat it too? I expect to have over $150k in gains in a few years. Can I realize those gains and not pay taxes on them? And then pay capital gains after that? Would I have to sell the home and buy another one? Is there a way to sell it to myself or a holding company that I own maybe?
@Andrew Erickson , that’s a good question and we have been asked that before.
If you plan to keep the rental for long time, selling your condo to your closely held Corp ( S-Corp) to qualify for section 121 gain exclusion would work.
Selling to a Corp qualifies as sale to third party.
Also, You can always wait until end of 3 years after you move out to see if the house appreciate more and still qualify for section 121. 3 years after you move out would meet 2 out of 5 years.
There is another benefit to this. Your S-Corp would get step up basis for depreciation compared to your original Basis.
This transaction has to be structured properly.
If you don’t want to do that, you can defer 85% of your capital gain if you invest in Qualifed opportunity zones. There are other post on this.
@Ashish Acharya that's great news! Plus it would have the added benefit of limited liability, right?
Can I sell it to an S Corp at an inflated price so my basis is higher? I'm sure there is a limit, but maybe I could sell it 10% over the "average" price. Or maybe sell it as a "turn key" premium rate since it will be fixed up and rented.