How To Sell Real Estate Tax Free

Performance Property Real Estate Question

Q: Gerald, my cousin is selling a property he’s owned for a while that’s gone up in value, but he’s worried about paying taxes on the gain. Is there any way to avoid paying big taxes on the profit? Ted, Bozeman, MT

A: That’s a great question, Ted.  There are two IRS codes that may allow your cousin to exclude or defer taxes on the gain from selling his property.  IRS code 121 allows you to exclude up to $250,000 as an individual ($500,000 if you file taxes jointly) of the gain from the sale of property that’s been used as a primary residence for at least two of the last five years before the sale.  IRS code 1031 allows you to postpone paying tax on the gain of a property if you reinvest the proceeds into similar property as part of what’s called a like-kind exchange. This deferred gain using IRC Section 1031 is tax-deferred, not tax-free, but 1031 allows you to defer taxes on gains indefinitely.

Thanks for your question, Ted.  Good luck.

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