plan to sell home and keep as rental with no tax

[John Pearson]

young couple with spring wedding plans.  Each owns SFR as primary residence, she with 2 roommate tenants .
Plan---while they are still single,she sells her house to him,avoiding tax on any appreciated value, after wedding they live in his house and keep hers as rental.
sounds too simple--am I missing something ?

[Simcha Davidman]

@John Pearson congrats on the wedding to the young couple!

What price is she selling it at? Will there actually be money changing hands?

Just to be sure I understand the scenario - Let's say she paid $100k for her house and now it's worth $200k. She sells it to him with a tax deduction for primary residence for $200k, and now he owns it with a basis of $200k, in case he ever wants to sell. Added benefit that he'd now get depreciation on an investment property worth $200k (less the value of the land, of course) instead of only $100k.

My concern would be whether this would constitute an arm's length transaction. Even thought they're not married yet, if the IRS could prove their close relationship at the time of the sale, I'd think it could be an issue, on the off chance that either of them is audited. To help with the issue, I think they should have the sale's price tied to a third party appraisal, and money actually changing hands.

But a qualified tax professional (assuming this is really the issue at hand) should be consulted. My response is not intended to be legal advice nor form an attorney client relationship.

@Yonah Weiss may have a good answer for you. He's a pretty smart dude.