Q: My spouse and I personal our dwelling collectively. The house has appreciated considerably within the 25 years we’ve owned it to the purpose that after we promote, we are going to web greater than $500,000 in revenue. Meaning, we’ll probably owe some tax.
Consequently, we’re pondering that we’d collectively promote our home to my spouse solely and solely to her. That manner we, as joint house owners, would declare the $500,000 exemption from capital positive factors and reset her foundation in the home to the gross sales value used within the transaction. Down the road when she sells the house, she can be eligible for an additional $250,000 exemption on capital positive factors.
Can this be finished legally? You also needs to know that we have to do that quickly. I moved to Florida and have been a authorized resident right here for the final two years, however my spouse has remained a resident within the state the place our house is positioned. Can this work and is it 100% authorized?
A: Uh, no. What you wish to do received’t work and isn’t authorized — although it appears it needs to be. We consider the IRS would frown on you and your spouse promoting the house to yourselves, and even the conveyance from you of your share of the house to your spouse shouldn’t qualify as a legit transaction.
For our readers enjoying alongside at dwelling, right here’s the background: If you happen to personal a house as your main residence and have lived within the dwelling because the proprietor occupant for 2 out of the final 5 years, the IRS lets you keep away from paying taxes on as much as $500,000 in income from the sale in case you are married, or as much as $250,000 in income in case you are single. That’s the overall rule in a nutshell. It’s an awesome profit to owners who’ve owned their houses for a very long time, and who’re fortunate sufficient to dwell in locations the place actual property costs have gone up considerably through the years.