Sell house to yourself?

[MikeF]

Let's say your house has appreciated close to the $500K married writeoff limit (I think capital gains when living 2 out of 5 years, or something like that).

Can you sell the house to yourself (or spouse) and restart the appreciation limit? Exactly what defines a home sale?

Has anyone else thought of this? And avoided fines and/or jail?

I tried to look up the subject but got way too many hits about FSBO stuff...

[michaelb]

I don't know anything about tax law or taxes and don't understand what you are trying to do or why.

Without doing any research on the subject, my guess would be that generally under the common law you would not be able to do a sham transaction to yourself solely. Most property transfers though are now governed by specific state laws, so this question really depends on the law of your state. Most/all states probably have laws allowing sham transactions, say to add a spouse to the deed of the house.

But I would guess that a real estate lawyer could figure out how to do what you want to do. For example, setting up a trust, transferring/selling it to the trust and then buying it back may work, and is something that people do in certain situations. there may be other ways too. There is going to be costs to doing anything like that, so that may offset any tax advantages.

Would borrowing money in a home equity loan allow you to leverage equity out of the house and reduce your tax liability?

[tenders]

Wouldn't help. $500k is a lifetime limit, not a per-transaction limit.

[AlphaDog]

Did you own a house before buying this one, and roll any of the value of that house into the purchase of the current one? Have you kept careful track of every penny you've spent on the house for capital improvements since you bought it? Here's article from bankrate that might give you some additional things to consider. It's a four-page article, and I tried to give you a link to page 3. Scroll toward the bottom until you get to the section called "Figuring the correct exclusion amount".

http://www.bankrate.com/brm/news/real-es...1018a3.asp

I don't think it's possible to do what you suggest legally. However, talking to an attorney might reveal some other options.

[Ken Sp.]

From what I read and remember--it is not a lifetime limit---It used to be
http://www.bankrate.com/brm/news/real-es...1018a1.asp

Still this is a sham transaction---and you will pay higher property tax rates since the price of the house is reset, Unless you are in an area that raises them anyway

How It Works

The key to the entire plan is that you are allowed to sell a principal residence once every two years and exclude up to $250,000 ($500,000 for a married couple) of the gain on the sale. Many of you may be under the mistaken impression that the home sale exclusion is still only "once in a lifetime," or only available to those of a certain age (such as the elderly), or only available if you buy a more expensive home. Those were the old rules, and they no longer apply. If you meet the two-year ownership and use tests for a principal residence, and don't sell more than one principal residence in any two-year period, you can exclude any capital gain tax on the sale (up to the $250,000 or $500,000 limits mentioned earlier). So, to get the maximum bang for your buck, you'll want to understand the rules and have the patience to wait out the two-year residence period. For those of you with substantially appreciated real estate in the form of investment properties or second homes, the tax savings could be worth the wait. Let's look at a few examples.

[AlphaDog]

Ken Sp. and I linked to the same article, just so you'll know.

[bfd]

[quote Ken Sp.]From what I read and remember--it is not a lifetime limit---It used to be
http://www.bankrate.com/brm/news/real-es...1018a1.asp

Still this is a sham transaction---and you will pay higher property tax rates since the price of the house is reset,
Yep... and at a $500k increase, in California that would amount to doing the physically impossible to yourself - twice a year from then on.

[Ken Sp.]

[quote AlphaDog]Ken Sp. and I linked to the same article, just so you'll know.
Yea---we googled alike :-)

When I started to post yours wasn't there--you were faster

[RAMd®d]

A woman who finishes first is a treasure.

[Filliam H. Muffman]

Wal-Mart does something like this. They started a real estate partnership and sold the stores to the partner and then leases them back. It allows them to deduct the rent payments off their taxes.