Capital Gains Tax-Free Exclusion

[Robert Capozzoli]

Hello,

Thank you for taking the time to read my post. My wife and I are trying to help my in-laws with their retirement plans. They currently own their home and are looking to retire in the next 5 years. My wife and I are trying to convince them that renting their home is the best option, as they want some time to explore other areas to live in the US, but keep the possibility of moving back or selling. I want them to avoid the sell and "cash out" option that they currently have plans for. I'm trying to show them how the monthly cash flow can provide them the income and freedom they need for a comfortable retirement. I want them to avoid putting all their eggs in one basket and hope it all works out. My suggestion was to use a small portion of the home equity to buy a small condo/town home when they decide where they want to retire.

My full-time job is in property management, so I told them I would manage the house free of charge while they explore their retirement options. The only snag I have hit is in their tax liability if we rent the home out. From what I have read, after 3 years the home would be considered an "investment" and not their primary residence and would then be liable for capital gains tax if they were to sell the home. Other than a 1031 or moving back into the home as a primary residence for 24 months before they sell, what options are available to avoid this tax? Could they "gift" the house to my wife and I...then we sell? 

Any insight is much appreciated!

Best,

Rob