Dan Celia

Financial Issues

January 2015 – Q: We have two investment properties that are homes that we rent. We would like to sell both of them, but have huge capital gains. Can we avoid the capital gains tax?

A: Basically you have two options. The first is a 1035 exchange in which you have a certain period of time to reinvest the proceeds in a “like” property. In other words, if you have a rental home, you would have to reinvest the money immediately into another rental home. You don’t really avoid the capital gains, but you do postpone them until you sell the new property.

The only other option is to gift one or both of the homes to your own charitable gift annuity. The gift annuity then sells it and, since it is charitable, you don’t have to pay the taxes on it. All of this money would go to work for you to fund your own charitable gift annuity, and you would receive an income for the rest of your lives.

Unfortunately, these are the only two practical ways to avoid capital gains tax. 

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Dan Celia has been in financial management for more than 30 years. He works closely with AFA Foundation and can be heard six days a week on AFR Talk (afr.net).

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