Are either of these kosher?

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NadCixelsyd

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Jun 30, 2021, 11:00:00 AMJun 30
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(A) Daughter bought a condo in 2011 and lives in it until September, 2018. She rents it out. It currently is worth about $200k more than she paid.If she sells it today, there is no gain as it was her primary residence until 2018. She doesn't want to sell it until next year as she likes the income. Can I buy it from her and then sell it back to her so that she can say that the sale was her primary residence so there is no cap gain tax?

(B) Our (married) residence is currently worth almost $500k more than our cost basis. Can I sell it to my son, write a 100% mortgage, pay him rent while I still live there, pay no cap-gain tax, and then repurchase it next year? This would reset the $500k clock to the new basis.


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JoeTaxpayer

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Jun 30, 2021, 1:05:07 PMJun 30
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On 6/30/21 10:59 AM, NadCixelsyd wrote:
> (A) Daughter bought a condo in 2011 and lives in it until September, 2018. She rents it out. It currently is worth about $200k more than she paid.If she sells it today, there is no gain as it was her primary residence until 2018. She doesn't want to sell it until next year as she likes the income. Can I buy it from her and then sell it back to her so that she can say that the sale was her primary residence so there is no cap gain tax?
>
> (B) Our (married) residence is currently worth almost $500k more than our cost basis. Can I sell it to my son, write a 100% mortgage, pay him rent while I still live there, pay no cap-gain tax, and then repurchase it next year? This would reset the $500k clock to the new basis.
>


There is something called The Step Transaction Doctrine

"Under the step transaction doctrine, "a series of transactions designed
and executed as parts of a unitary plan to achieve an intended result
... will be viewed as a whole regardless of whether the effect of so
doing is imposition of or relief from taxation."


In effect, the IRS can treat a series of transactions in a way that
acknowledges they were done to avoid taxation. Especially transactions
like this between related parties.

Now, as with any tax-related matter, the question is whether it comes to
their attention. If it did, I'd say that both transactions will be
disqualified.

John Levine

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Jun 30, 2021, 2:05:10 PMJun 30
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According to NadCixelsyd <nadci...@aol.com>:
>(A) Daughter bought a condo in 2011 and lives in it until September, 2018. She rents it out. It currently is worth about $200k more than she paid.If she sells it today, there is no
>gain as it was her primary residence until 2018. She doesn't want to sell it until next year as she likes the income. Can I buy it from her and then sell it back to her so that she
>can say that the sale was her primary residence so there is no cap gain tax?

As others have noted, that would scream bogus. Depending on how involved you want to be, you could buy it now,
gift her next year's income, then worry about reselling it later.

>(B) Our (married) residence is currently worth almost $500k more than our cost basis. Can I sell it to my son, write a 100% mortgage, pay him rent while I still live there, pay no
>cap-gain tax, and then repurchase it next year? This would reset the $500k clock to the new basis.

If you don't expect to move in the future, just stay there and let it be part of your estate.
Or sell it to him and rent it from him until you move, at which point he can do whatever with it.

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Alan

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Jun 30, 2021, 3:30:15 PMJun 30
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On 6/30/21 7:59 AM, NadCixelsyd wrote:
> (A) Daughter bought a condo in 2011 and lives in it until September, 2018. She rents it out. It currently is worth about $200k more than she paid.If she sells it today, there is no gain as it was her primary residence until 2018. She doesn't want to sell it until next year as she likes the income. Can I buy it from her and then sell it back to her so that she can say that the sale was her primary residence so there is no cap gain tax?
>
> (B) Our (married) residence is currently worth almost $500k more than our cost basis. Can I sell it to my son, write a 100% mortgage, pay him rent while I still live there, pay no cap-gain tax, and then repurchase it next year? This would reset the $500k clock to the new basis.
>
>
> ========================================= MODERATOR'S COMMENT:
>
> Sorry everyone - I had password problems and was unable to moderate any
> messages for the last several days. I'm back, so please feel free to
> contribute.
>
Over and above the other responses (JoeTaxpayer / John Levine) your
statement in (A) that there is no taxable gain is incorrect. She can
not exclude any gain that is attributable to the depreciation allowed
(amount actually taken) or allowable (amount she could have taken) for
the rental period. Additionally, the total gain is calculated after her
cost basis is adjusted for the depreciation allowed or allowable.
What she has in tax parlance is an unrecaptured Section 1250 gain
subject to a max tax of 25%.
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