Options to Avoid Capital Gain Tax

[Gary Michalske]

Hi BP-er’s,

I have a tax strategy question about a deal I have the inside track on. My plan is to purchase this deal for $200K cash and wholesale it.

This situation involves a 101 year old elderly family member that owns a Davidson County, TN residence free and clear of any liens. Due to the health condition and age of the elderly owner, she has quit claimed the property to her nephew. The deed shows the aunt and the nephew as joint owners. The aunt and her nephew are both in the nursing home now. The 83 year old wife of the nephew (her husband) has been given POA over medical, banking and dissolving the estate. The wife has intentions of selling the house to cover the nursing home stay of the aunt and her husband. She intends to sell the house to me for $200,000 but is concerned about tax implications of the proceeds from the sale of the home.

So the main question is how the sale will be viewed by the IRS. I assume it will be considered as capital gain and will be taxed accordingly. Neither of the owners are interested in purchasing another house via a 1031 exchange so that isn’t an option. I did entertain owner financing so the joint owners can avoid a large capital gain but since I plan on selling the property immediately that doesn’t seem too viable to me. If I went that route, I’d have to immediately find two $100K properties to buy and hold and then “walk the mortgage” to them so the joint owners could keep the owner financing in place.

• So what is the current capital gain tax percentage?
• What other options are there to minimize the tax burden?

[Dave Foster]

@Gary Michalske, depending on the estate and long term care planning side of things the 1031 might not be out of the question yet.  There are some passive 1031 compatible products that are real estate yet totally passive.  It's possible that something like this might just throw off enough monthly cash to cover the long term stay needs.

But there's also other medicare/medicaid considerations that they should speak to an elder care specialist attorney about.  That a land mine field of regulations.