[WSBARP] tax question

[Craig Gourley]

As far as the reason for this and the proceedure, I am presuming they have been using it as a rental for the last few years. Code section 121 allows the $500k of tax free gain to married couples filing jointly if the home has been their principal residence for 2 of the last 5 years. So if they are close, they need to sell before they exceed that 3 years of non primary residence use. They appear to be selling on a section 453 installment sale. My guess is that they plan to elect out of 453, accelerate the gain and recognize it in the year of sale. This accelerated gain is then considered exempt under Section121. The net result is future payments on that note are tax free (except the interest portion) up to the $500k amount. I would suggest using a note and DOT as I don't know if you can accelerate gain on a real estate contract but know you can on a note.. Hope this helps. Craig

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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> on behalf of David Daniel <ddaniel at demcolaw.com>
Sent: Monday, May 18, 2020 2:33:27 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] tax question

Thank you very much sir. Very concisely put. :)


David C. Daniel, Attorney

____________________________________
 DEMCO LAW FIRM, P.S.
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Office | (206) 203-6000
Email | ddaniel at demcolaw.com<mailto:ddaniel at demcolaw.com>

5224 Wilson Ave. S., Suite 200

Seattle, WA 98118


On Mon, May 18, 2020 at 2:28 PM Marvin Benson <marvinbensonlaw at gmail.com<mailto:marvinbensonlaw at gmail.com>> wrote:
For the purpose of the exclusion of gain from the sale of taxpayers principal residence, there is nothing wrong with installment sales.   If the taxpayer later repossesses the residence, there are rules for recalculating the gain.  If the transaction were fraudulent there could be other rules involved.

Marvin Benson

On Mon, May 18, 2020 at 12:34 PM David Daniel <ddaniel at demcolaw.com<mailto:ddaniel at demcolaw.com>> wrote:
Listmates,

I certainly am not a tax advisor so I may have my terminology wrong here, but here goes:

Client advises that he and his spouse need to sell their property within a month from now to capture the $500k exclusion from capital gains on sale of personal residence. Client wants to proceed with a seller-financing transaction to a buyer who will pay little-to-nothing down. Can Client capture the full benefit of the $500k exclusion on such a transaction even if no (or very little) cash gain is recognized at the closing? Does it make a difference if it is Note/DOT vs. REK?

Seems to me the exclusion would only apply to gain actually recognized prior to the deadline (i.e. at closing), because to allow otherwise would seem to create a loophole for Client to capture the benefit by simply transferring the property to an insider (who could then subsequently sell the property to a third party, without concern over the deadline, and then agree (on the side) to a profit sharing arrangement with the original owner/Client).

Hope that makes sense. Any insights? Thanks in advance.



David C. Daniel, Attorney

____________________________________
 DEMCO LAW FIRM, P.S.
____________________________________
Office | (206) 203-6000
Email | ddaniel at demcolaw.com<mailto:ddaniel at demcolaw.com>

5224 Wilson Ave. S., Suite 200

Seattle, WA 98118

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