Divesting equity in home tax free for retirement - Posted by Anthony

Posted by David Butler on August 08, 2005 at 13:21:08:

Hello Anthony…

There is no “best way” per se. There are options however, that can be examined and then explored with his tax adviser with regard to:

his personal objectives;
his personal financial situation.

He can create a note and possibly take benefits of installment sale prorated deferrments for the portion of capital gains profits exceeding the “homeowners exemption” ($250k or $500k according to qualifying marital status) of IRC 121; but the sale of the note would trigger the realization of gain in most cases.

Taking advantage of home equity loan could be a good option; or possibly creative use of Land Trust mechanism; or reverse mortgage.

Or using home equity as “additional” collateral depending on what you and he have going on. Or selling on installment and using note as additional collateral. Or many other creative approaches. Lease-option can be made to work too.

Curious though? If he is “retiring”, why is he selling off what most folks consider prime retirement property? Where is he going to live? Chicago? :slight_smile: Just wondering?

Divesting equity in home tax free for retirement - Posted by Anthony

Posted by Anthony on August 08, 2005 at 11:58:01:

A friend that I know wants to retire. He has a home that is free and clear that is worth $1,000,000. What would be the best way to divest with the least tax payed. He is interested in becoming a private lender to me so that he can get a good return on his principle. I believe he is exempt on the first $500,000 because this is his primary residence and he is married. What would be the best way to divest. Could he create a note to sell the property using owner financing and then sell the note perhaps carrying back a second for the difference in equity. Would he be exempt from gains using a note. Or would he be better off taking a loan for the equity and then selling on a lease option to harvest the appreciation. This is a prime waterfront property in Florida that is appreciating unbelievably year by year.