Real estate capital gain tax saving solution

[Qiang Jin]

My wife and I have a co-owned real estate property outside of US and we would like to sell it. If we sell it directly there will be a huge gain therefore we have to pay a lot of tax to IRS. After studying IRS capital gain tax an idea comes to my mind which I think would save a lot of tax.

According to IRS, for single folks, you can benefit from the 0% capital gains rate if you have an anual income below about $44k. Because my wife's income is lower than that, the idea is we first transfer the property to my wife only (with some very small fees), then she sells it, and in that year we file tax seperatly in order to take advantage of the 0% capiyal gain tax on her tax return.

Can any pro CPAs or anyone who had done this before to double confirm if it's feasible? Any risks that IRS to audit/challenge this solution? I think this is quite obvious/common, so it's hard to believe it is true to save the tax so easily.

Thanks
Qiang Jin

[tagteam]

---

@Qiang Jin wrote:

Any risks that IRS to audit/challenge this solution? 

---

Yes, lacks substance if the IRS wants to challenge the reporting; they could invoke the step transaction doctrine.

See https://www.irs.gov/pub/irs-wd/0826004.pdf

See also https://www.thetaxadviser.com/issues/2021/may/step-transaction-doctrine.html

The bottom line is that you are not allowed to structure a series of transactions the sole purpose of which is the avoidance of federal income tax. There's only one in your case (the transfer to your wife), but there is still that risk.