Hello! We inherited a house really close to our own home and plan to move there eventually. We would like to make it possible for our daughter to move back to the area. We have owned our current home 25 years, she grew up here. We don't plan to charge FMV rent, just cover living expenses. If she stays in our home indefinitely, will we be required to pay Capital Gains? It is my understanding we can only allow her to stay up to 3 years prior to selling if we don't want to pay CG - which would be A LOT! This area has become almost impossible to afford, otherwise I would say she could eventually purchase it, or nearby in same school district.
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Yes, you are correct. The rules of capital gain exclusion for the sale of your main home must occur within five years in your situation. It's necessary to show the time that it was your main home. Below is a summary of the requirements for exclusion of gain on your main home sale.
Exclusion amount: If you meet certain conditions, you may exclude the first $250,000 of gain from the sale of your home from your income and avoid paying taxes on it. The exclusion is increased to $500,000 for a married couple filing jointly.
Key Eligibility Requirements: IRS Publication 523
Hi! Thank you so much!
Would it be possible for in the less than 3 year time frame required for us to sell her the house and use our equity as her home loan if you will? Aka - take her down payment in cash and then accept mortgage payments with an agreement that she will refinance at some point if/when the interest rates become reasonable again and pay off our "loan" to her. The interest rates are mainly what would make the place unaffordable to her right now. She will have a down payment because she needs to sell her current home in order to move back "home".
Yes, it's possible. As long as you have a true mortgage prepared and the sale is recorded with the courthouse as with any regular sale. A lawyer would need to be contacted for the exact legal advice and procedures for the seller being the mortgage holder.
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