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tax planning for residence that is fully paid off

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Sandy Botkin

Co-founder at Taxbot
Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).
Sandy Botkin
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Do either you or your parents have their principal residence mortgage free?  If so, no deductions are gotten from that residence. Even worse, most of the taxes paid are probably not deductible since there isn’t enough to probably itemize these deductions in order to deduct all the taxes. Thus, what should you do? Here is a technique that the rich have been doing for years.

It is called the sale-leaseback. The parent would first sell the home to their kids. They would get an appraisal and sell for full fair market value. Step 2, they would then lease the home back from the kids. Normally this would also be a fair rent but court cases allow as much as a 20 % discount for having a reliable tenent. Thus what are the benefits:  First, parent avoids gain up to $250K/500K if married.

Second: parent gets cash out of home and keeps home in family
third: Kids get to depreciate the home since it’s investment property.
Fourth: The house is out of the parent’s estate saving estate taxes and probate.
Finally, the kids can visit the parent once a year , and if done correctly with letters etc. can deduct this trip as a “caretaking” expenses. Pretty cool, huh?

This strategy is ideal for homes that haven’t appreciated much beyond the universal exclusion,which is 250K for singles and 500K for married folks

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Sandy Botkin

Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).

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