Are there any creative ways to avoid or reduce the tax owed when selling a rental property? How about giving the home to a family member, then selling it? What are gift-tax issues? Can someone receive this gift and sell it immediately? Do you have any other ideas?
You can't eliminate taxes on real estate investment property. The only way I know to defer tax (meaning, you'll need to pay taxes down the road) is by using a 1031 tax-deferred exchange, also known as a deferred exchange or Starker exchange.
A 1031 exchange allows you to sell your property and defer any taxes owed as long as you buy a replacement investment property that costs at least as much as the property you're selling. There are, of course, many other rules to comply with, and you should work with a professional in the area of tax-deferred exchanges.
Giving property to friends or relatives can land you in a heap of tax trouble. You have to file a gift tax form with the IRS, and the value of the property counts against your lifetime gift exclusion.
In addition, the person you're giving it to gets your future tax liability because they receive the gift at your current cost basis. When they sell, they pay the tax that you would have paid.
The question is, how much do you really owe? If you've held your investment property for at least a year, you'll only pay long-term capital gains tax on the profits, which would top out at 15 percent, plus state tax (you'll also have to pay 25 percent of any depreciation that you took while you owned the property). For more details, see your tax preparer or accountant.
am currently in the process of getting divorced. My husband and I own a house in Massachusetts, and I have moved to my country of origin, India. My soon-to-be former husband is asking me to sign over the deed of the house to him, thereby giving up ownership of the house. His lawyer says even if I don't sign they will get a court to make me do it. Is that possible? Will I get any share of the equity of the property?
The answer is yes, you might have to sign a deed eventually. And yes, your former husband might be able to force you to sign by using the legal processes available through the U.S. courts.
What I'm wondering is, where is your attorney in all of this? If you are getting divorced, you should hire someone to represent your legal and financial interests in the case in the United States.
My husband and I are wondering if there is such a thing as a "financial adviser/counselor." We need someone to literally help us reposition our investments (per the advice we received from a fee-only financial planner we saw a year ago). But we also need that same person to be able to mediate between the two of us and the differences we have over money.
We have differences in how we spend, budget, invest and communicate about our finances. I am also wondering if it's a bad time to make changes to our investments. We want to consolidate our scattered accounts that we have with multiple brokerages.
I'm sure there is a financial adviser out there who could be the real estate agent's counterpart - but I wouldn't count on it. Instead, you and your husband need to sit down with a trusted psychologist/counselor to work through the differences that you have about money. This person doesn't need to be a specialist. What he or she does need to do is help the two of you talk about your needs, differences and preferences around this subject.
Typically when two people in a relationship have differing views about money, it stems from the way they were raised.
Someone who is extremely, and unnecessarily, tight with his cash might have inherited this Depression-era mentality from his parents.
They might have seen their parents lose all their wealth (and throw the stability of the family into jeopardy) and taken from that the lesson that they need to hang tight to every last nickel.
On the other hand, if someone spends as if there's no tomorrow, that also can have deep roots in childhood.
To get the root of the problem, you and your husband need to spend some time examining why you are the way you are with money. And, you have to learn how to compromise.
This conversation can be difficult, which is why I'd suggest working with a professional.
But not having this conversation can lead to all sorts of long-term financial problems. For example, if you and your spouse have differing views on how and when to pay your bills, and you start paying late, this will trash your credit histories and credit scores.
Being in a relationship means compromising on all sorts of things, including how you handle money. If you can't find someone to help you sort this out, I hope you'll take some baby steps in the right direction.
Contact Ilyce Glink through her Web site, www.thinkglink.com, by mail at Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022 or calling her radio show at 800-972-8255 from 11 a.m. to noon Sundays.