selling rental

[Ken]

I have client who sold a rental house to their children for $1.00.
The children had been living in it and paying rent. After the sale, the children continued sending them money for rent, even though the house was now theirs.

Their plan is for the kids to live in the house for three years and then sell it and pay the parents part of the sale price and neither will have to pay capital gains tax.

sound more than a little shady to me but is it leagal?

[jerome]

Tell them it is a sham transaction.

Don't even bother trying to figure this one out. Under the facts and circumstances of what you describe, the parents still own the property for tax purposes.

[Ken]

you're right

I agree with you Jerome. That would have given the parents a loss (although a small one) and I looked it up. You cant take a loss on property you sold to your relative, so they are just going to have to bit the bullet.