Q:

Subject: Sale of Personal Residence 

Hi Kerry,

 

I have received conflicting advise and found you during my research on the internet.

 

I own a condo in which I have considerable equity and lived in for 17 years. Nearly 3 years ago I bought a townhome and borrowed against the condo equity for my down payment. For a variety of reasons, I didn't decide to sell the condo until this past month. Here is my dilemma:

 

At the end of May I will have been living outside of the condo for three years and will lose my exemption benefit. The condo needs some work to get full value and I fear that by the time I get the work done and can find a buyer that I will not be able to close in time to preserve my exemption. Since the condo needs work, I thought that perhaps I could sell the condo to an LLC or S or C Corporation which I control and then fix it up and sell it, essentially flipping the property. Or selling it to a relative to accomplish the same thing.

 

I've been told by one CPA that neither sale would be respected by the IRS and another says there are no rules about sales to relatives or to entities that are controlled by the seller - except for the remainder interest discussed on your site. I haven't been able to find any discussion of similar circumstances by searching the web. I'm simply looking for a way to preserve my exemption as my gain will be considerable.

 

Thanks for any insight or direction you can provide.

A:

I'm not aware of any new restrictions on sales to related parties since my earlier posting about selling a home to a controlled LLC.

One of the nice benefits of producing this blog is the volume of feedback it receives, especially if another tax pro thinks I missed something or misstated any facts.  So far, nobody has piped up with any arguments over that issue; so it seems that it should work for your particular situation.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/06/2006 11:47:00 AM Send this post: