Financial advice columnist Liz Weston addresses a complex situation involving estate planning, tax law, and a terminal illness diagnosis. The reader’s friend owns a rental property that has appreciated significantly, creating a potential $100,000 capital gains liability upon sale.
The core of the dilemma is whether the friend’s health condition offers any relief from this tax burden. Typically, homeowners can exclude up to $250,000 in capital gains ($500,000 for married couples filing jointly) if the property was their primary residence for at least two of the five years prior to the sale. However, rental properties do not qualify for this exclusion.
Weston explains that while there is no specific tax break for being terminally ill when selling an investment property, there are strategies to consider. One option is a 1031 exchange, which allows investors to defer capital gains taxes by reinvesting the proceeds into a similar property. Another possibility is to gift the property to heirs, as inherited assets typically receive a
My uncle faced this exact issue. We consulted a tax attorney, not just the columnist. Highly recommend professional advice.
Good point about stepping up the basis for heirs, but what if they sell immediately? The tax hit remains.
This highlights how unfair the tax code is for those facing terminal illness. Is there really no compassionate exception?
A 1031 exchange seems like the only real escape here, but it requires acting quickly given the friend’s condition.
I didn’t realize rental properties were excluded from the primary residence cap. That’s a crucial detail many miss.