How do I avoid paying capital gains tax on a rental property? I am a senior citizen 75 yrs old?

Answer 1

There are two components of gain for a rental property. The first is the depreciation that you were taking since putting the property into service. This has to be recaptured (paid) at 25% when you sell the property. Any additional gain is long-term capital gain (15%). There are two common ways to avoid paying the taxes.

1) Exchange the property for another similar property (rental property) using the "like-kind" exchange method. The good thing is the basis rolls-over into the new property. The bad things are the new property has to be at least as expensive as the old one, the transfer has to be done very carefully...very specifically...or the IRS will disallow is as "like-kind", and you don't get any cash from the deal. All you really do is postpone the capital gain into the future. This is good if you are moving and want to sell the property in your old location and buy property in your new location. Be very carefull before doing this because it is very technical. Contact someone in your area that has done this before and knows it well.

2) Die. Yes, if you die, the people who inherit your property use (as their basis) the fair market value of the property at the time of your death (or 6 months afterward). Neither your estate nor the people who inherit the property have to pay taxes on the capital gains (the difference in the fair market value and your basis). They disappear forever!

That is all I know. Hope it helps.

Answer 2

Gift it to a church. Assuming you have enough income to use the deduction for the charitable donation. There is a limit as to how much you can take each year and your age may play a part in the number of years it would take to use up the deductions. That and dying are the only legal ways. Some folks live in it for two years and sell the property as their main home, avoiding $500,000 (if filing MFJ) of the capital gain. You should recapture the depreciation but it has been know to slip the mind of some taxpayers. I have also heard of people mortgaging the property to the hilt and walking away from the loan. However it would be fraud if you did either of those intentionally, so you would not want to do anything like that.

Answer 3

Assuming you sold or want to sell (get rid of the property), age has nothing to do with business property.

You could legitimately avoid paying tax if the property cost you more (including undepreciated capital improvements) than what you sold it for. Highly unlikely since depreciation at sale is calculated by "allowed or allowable", meaning whether you deducted it when you could or not. And the land portion of the property is not depreciable at all.

Hopefully you had alot of legal & real estate expenses you never expensed that you can use against the cost (including those from when you originally purchased the property).

Answer 4

You may be able to defer the tax by exchanging the real estate for another piece of real estate which has a business use. This is called a "1031 exchange". Or you could bequeath it to your heirs, who will inherit the property on a stepped-up basis and not pay tax on the capital gain that you had.

Answer 5

YOU NEED TO TALK TO AN ACCOUNTANT THEY KNOW THE REAL WAY TO DO THIS.