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Parlay 2 homeowner breaks into tax jackpot

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in Small Business Tax

The home sale gain exclusion is one of the biggest federal income tax breaks around. However, the gain exclusion may not be big enough to shelter all of your gain from tax if you sell a highly appreciated home.

Strategy: Follow a two-step approach. First, convert your principal residence into a rental property. If you need cash to buy a new home, you can refinance to pull out some of the equity. Second, exchange the old home for another rental property. It can be an apartment building, warehouse or other commercial or investment real estate.   

As long as you meet all the tax law requirements, you’re able to max out on the home sale exclusion, even though you technically haven’t sold the old home. At the same time, you defer any taxable gain that is due on the exchange until you sell the new property.

Here’s a quick recap of the two key tax provisions.

Tax break 1. If you have owned and used your home as your principal resid...(register to read more)

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