How to link two real estate tax shelters

2 05 2005

The federal American Jobs Creation Act enables property owners to avoid paying capital gains taxes on their investment properties. They can use a like-kind exchange, also called a 1031 exchange, to avoid paying taxes when they sell the property, provided that they purchase another rental home within 45 days of the closing date.

To qualify for the capital-gains exemption on principal residences, meanwhile, owners must reside in the dwelling for at least two years during a five-year period. To apply this benefit to an investment property, they can either live in the home for five years themselves, or rent it for three years and live there for the remaining two.

After the five-year period is up, they can sell the residence and exclude $250,000 from their taxes if single or $500,000 if married and filing jointly.

Source: Investor’s Business Daily



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