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Tax Law (Questions About Taxes)/Rental Property Capitial Gain

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Question
I exchanged a rental property, 1031 in 2008, to another rental in a different state. The tax on the gain at that time, 2008, was 25,000.  
Currently, if I sell now 2014, my accountant has estimated the tax on the gain at 60,000.  

If I move into the property, and later sell, lets say living there 5 years and then sale, would I then escape the gain, or a percentage of it?

If I live in the property for the remainder of my life, would my heirs owe the gain upon my death?

Thanks in advance

Answer
reasonably complicated calculation, but you could possibly "cleanse" all the gains if you live in a property 2 of the last five as your principal residence (code sec 121) but the basis and such carries over with some of the rental taint.. now (used to be you could cleanse all the gains).  

the tax issue is not only amount, but character.. capital gain and/or recapture of depreciation at ordinary rates..  

you also have state tax issues.  to be quite honest.

if you overall estate is less than the then estate tax exemption (now $5.m + but expected to be reduced; if you have other significant assets and are over 60, a discussion with a good estate lawyer and cpa would be warranted).  but, generally, yes your heirs could escape income and estate tax on the inheritance of a principal residence - regardless of how long you live in it or if you ever live in it again (if you moved to yet another state and kept renting the property, and passed.. then leaving the property to your heirs, they would take that property at your date of death valuation and pay no income or estate tax.

lots of fun stuff..  avoiding 60k is a powerful reason to make sure you structure your affairs correctly.  but dont let the tax tail wag the dog - do proper planning and document it now

if you want to chat more... send a new message and mark it private and we can talk off line

patrick

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Tax and general business including hospitality related (hotel mgmt degree and experience in industry prior to obtaining ms tax and cpa).

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19 years cpa. ms tax. NOTE: My discussions are only a general information and do not constitute tax advise without entering into a specific agreement and executing an engagement letter; This free chat is nothing more than general information and should not be construed as tax advice nor does my response or replies imply an agreement to provide client specific advice or other guidance for purposes of avoiding IRS tax or penalties and should not be relied upon without your own validation and confirmation of the how the discussion may fit your facts... Not having all the facts and/or not having a direct client relationship prevents me from providing the most accurate replies as possible and I highly suggest using a local CPA to provide you with written advice and guidance. Taking matters into your own hands is much akin to trying to land an airplane without a license. It is easy to FLY a plane, but LANDING is when critical experience is key. In short, caveat emptor; do your homework and don't just rely on free chat board advice anywhere, anytime.

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