Asked by Connors Sue  |  Submitted October 23, 2014

I'm selling a house for a large profit what can be done to avoid paying taxes on profit besides reinvest in more property?

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  Answers  |  1

October 23, 2014

Hi -
I like those words "large profit". If this is a personal residence and you've lived in the house for at least two years, there is no federal income tax on a gain of $250,000 if you are single or $500,000 if you are married. If the house is not a personal residence e.g., a rental property, then your gain will be mostly taxed as a long-term capital gain and taxed at 15% or 20% depending on your other income. For a rental property you could also do a "Starker Exchange" under code section 1031 of the IRS tax code. A properly executed 1031 exchange allows you to defer the gain by investing in another like kind property i.e., another rental property. The rules regarding Section 1031 exchanges are quite rigid and must be followed for the transaction to qualify. For specific tax advice you should consult with a Certified Public Accountant (CPA) in your area. Good luck!

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