Selling RE to a relative

[Mark Goldberg]

Are there any problems selling an owner occupied two family house to a relative in terms of the section 125 exclusion and tax on the renatla portion?

[jimmcg]

Sec 121

Don't know what problems you had in mind Mark but I would think as long as it is an "arms length transaction" properly supported by an independent appraisal and complying with all terms of the Sec 121 exclusion requirements it should pass muster. You don't give many details and facts such as was any part of it ever used for rental, etc. Are there any other relevant facts we should be aware of?

[jainen]

Here's the plan

Here's the plan.

May 2006. Dad just died and Mom wants to move out of the house they bought in the 80's for $100,000 It's pretty run down but it would be worth $600,000 once I get it cleaned up. The problem is, I can't do all the fixing and sell it before the end of the year. Also, we can't get top price in the winter. I'm going to buy it now so she can take the full $500,000 exclusion. Since I "intend" to rent it, all my cleanup costs will be deductible on Schedule E (I estimate that will be, um, $25,000).

May 2007. Oh my, it turns out rental vacancies are too high around here, now I'll have to sell. Of course, my basis is $600,000 so I don't have any taxable gain. And with the sales proceeds, I can pay back my Mom, since she was carrying the 100% mortgage for me.

[Mark Goldberg]

Answers to Jim's questions

One 1/2, Unit A, was rented and 1/2, Unit B, was primary residence.
Let's say this is the scenario: the place is made into condo's and unit B is sold below FMV to her son. Other than claiming the $250,000 section 125 would there be any issues?

[taxea]

Selling RE to a relative

Is she still living in Unit A and only sold unit B? If Unit B was still a rental and continues to be a rental then she may be able to take the loss but not the 500K.
If the entire property was sold then Unit A is allocated with a 250K deduction and no loss can be taken because it was sold to a relative.

If you "intended" to rent it and take all expenses on Sch E...it is a business sale and the 500K for you (if you are married) doesn't apply.

It sounds to me like you are trying to find a way around the rules.