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Tax tip: Avoid the ‘resale rule’ for related parties

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in Small Business Tax

Q. I sold a real estate property to my son on the installment basis. Is there any tax problem if he resells it at a gain? D.K, Casper, Wyo.

Yes. Under the installment sale method, generally, you can defer the tax on the sale of appreciated property if you receive payment over two or more years. But you may have to realize the deferred gain if the property is subsequently sold by a “related party.”

The taxable amount is (1) the gain realized from the second sale or (2) the remaining deferred gain from the original sale, if less. (IRC Sec. 453(e)(3))

Tip: If your son waits until two years after he acquires the property, this resale rule for related parties doesn’t apply.

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