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How can my parents avoid paying taxes when they sell their house?

November 9, 2006


Date:  Tue, 17 Oct 2006
From:  John

I am in the process of buying my parentsí house. They have a tax basis of $5,000 and the house is currently valued at $500,000. What is the best way to buy the home and avoid a tax burden for my parents?

Thanks

Answer

Date:  Thu, 02 Nov 2006

Hello John,

Assuming this is your parentsí principal residence and has been their principal residence for two of the last five years, your parents should qualify for a $500,000 exclusion. See our report, "Could your residence be the ultimate tax shelter?" I suggest that you get help from an attorney or title company with the paperwork.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

How can my parents avoid paying taxes when they sell their house?

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