How can I reduce capital gains tax on a new rental home?

[Charles Jessup]

I bought my primary residence 4 years ago for $150k.  Now it's worth $200k because of market increases in the area.  I'm planning to buy a new house to live in and rent out the old one, but I'm concerned about becoming liable for the $50,000 capital gains tax on the price increase.  

I know that I won't have to pay capital gains tax if I sell it now, but I think I will if I rent it out and then sell it in 4+ years.  Is that right?  

If so, is there anything I can do about it?  Is there a way to raise the basis to 200k now so that I won't have to pay as much capital gains tax in the future?

[David Dachtera]

Originally posted by @Charles Jessup:

I bought my primary residence 4 years ago for $150k.  Now it's worth $200k because of market increases in the area.  I'm planning to buy a new house to live in and rent out the old one, but I'm concerned about becoming liable for the $50,000 capital gains tax on the price increase.  

I know that I won't have to pay capital gains tax if I sell it now, but I think I will if I rent it out and then sell it in 4+ years.  Is that right?  

If so, is there anything I can do about it?  Is there a way to raise the basis to 200k now so that I won't have to pay as much capital gains tax in the future?

Just to clarify, you would owe tax on the $15K, not be taxed in the amount of $15K. 

As long as your new home costs equal to or greater than the selling price you get for your home, there is no tax on the gain.

Please verify with your tax professional (I'm not one).

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
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