Sanford, FL asked in Real Estate Law and Tax Law for New York

Q: Selling sister's condo, profit of $65K, she is a missionary in Peru how can she avoid taxes until return in few years?

Hi. My sister has been a missionary in Peru for four years, and plans to do this for several more years. I am in the process of helping her sell her Condo in NYC. She will have a net equity profit of approximately $65,000 at sale, she does want to use this to buy her next home when she returns from her mission. She is 56 years old and will probably settle down in Florida when she finishes her missionary work. Is there a way she can postpone the tax hit on the $65,000, without directly purchasing another home within the year of selling of her condo in NYC? Thank you!

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3 Lawyer Answers

A: If the property has been her primary residence and she has not changed residency then the property would qualify for the personal residence exemption and the first $250k in gain would be exempt.

There needs to be an analysis of her residency status. Just because she's out of the country doesn't mean she has changed residency. It's hard to make that determination with limited facts and those facts should not be discussed on a forum.

Also, it appears that you're referring to a 1031 exchange in the later part of your question. A 1031 has much stricter time limits than the same year and is no longer available for non-business property under the TCJA. If you wanted to consider a 1031 you'd have to convert to a rental first and exchange for a new rental property. There would need to be a conversion back to personal use at some point which may create a taxable event and is risky in the event of an audit.

I would hire a professional. There's enough here to justify the cost.

Best of luck.

Jeffrey Anton Collins
Jeffrey Anton Collins
  • Tax Law Lawyer
  • Naperville, IL

A: It is possible that she qualifies for exclusion of capital gain on that sale. It sounds like she could avoid all of the estimated $65K in gain under Tax Code Section 121(c), as long as she sells before she is out of the home for about 4.5 years. The opportunity is much more challenged after that. However, there is possibly another opportunity for her to take a full exclusion of all gain, applying IRC Subsections 121(c) and 121(d)(12), because her work is much like that of the Peace Corps, which also has a special exception.

I would consider planning a sales based upon the assumption that the tax can be excluded, if the timing of the sale meets the exceptions mentioned above.

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Michael David Siegel
Michael David Siegel
  • New York, NY
  • Licensed in New York

A: Yes, but this should be done with the lawyer hired for the transaction.

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