I have a situation where I bought a home for my in law parents , they paid rent whenever they could and in 2019 and 2020 I treated as an investment property and deducted expense and depreciation. The rent was below market value. In 2021, we charged them no rent. Because of this we do not qualify for a 1031 exchange to apply to a new home for them when we sell this home. I'm looking at a long term capital gains tax 15% on the increased property value. If I gift the house to them, and we sell shortly thereafter, its also 15% due to short term gains tax.
Looks like I should have gifted the house to them up front and with their low income they would have paid 0% long term capital gains tax. Are there any other ways to avoid this 15% tax?
