June 14th, 2010
Selling rental property. How can I avoid paying tax on this? Need a quick answer please?
Accountant says I’ll owe $10,000 in income tax by clearing $56,000 on sale of rental. Can I pay off my principal residence with that money and avoid paying those taxes?
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Filed under: Sell Property
The only way to avoid capital gains tax on the sale is by doing a 1031 exchange, also known as a “like-kind” exchange. You would roll over the proceeds from your sale into another rental property.
Capital gains rates are at an all time low, so you picked a good time to sell.
If you have already sold the property, it’s too late to set up a 1031 exchange. Even then, you’d have to invest in a more expensive property and not take out any money to avoid paying taxes now.
No, you can’t pay off your personal residence with the money and avoid paying tax on the proceeds.
The other answers about the 1031 exchange being your only “out” are correct.