How do I avoid Property Gains tax via an IRA?

Question

I would like to sell property before I have lived in it for 2 years. How can I avoid the Property Gains tax by buying/selling in the name of an IRA? If I am 59.5, how long do I have to wait before I can take the money out without penalty?

Answer 1

If you could sell real estate inside an IRA, the gains would eventually be taxed as ordinary income, not capital gains. You would be better off taking a capital gain which is a maximum of 15%.

Also, contributions to an IRA must be in cash.

So, what you propose isn't possible, and even if it were, it wouldn't save you taxes.

As for taking distributions from your IRA, you will avoid the 10% early distribution penalty at age 59.5 regardless of how long the money has been in the IRA.

Answer 2

I wouldn't even try what you are proposing. You would be raising too many red flags with the IRS by even proposing on trying this. First of all, you have a yearly limit as to how much you can contribute to an IRA, so I doubt, unless the property isn't worth very much, that you would be able to contribute the property to the IRA, as it would need to be at the fair market value of the property. And even if you did manage to contribute the property into an IRA, when you sold the property and started taking the money out of the IRA (which you can start taking it out without penalty at 59 1/2) the IRA distribution would be taxed as ordinary income rather than at capital gains rates, and therefore you would more than likely pay a higher tax doing it that way. Best bet is to live in the property for the 2 years.

Answer 3

You can't do that. So your second question doesn't have any meaning.

If you moved because of a job change, health issues, or other unforseeable circumstances (not just because you felt like moving) you can probably take a reduced (prorated against the 2 years) exclusion of gain which might cover your entire gain.