House Swap - Tax/Q for Greenie

Water Cooler
#1

AF in general and Greenman in particular,

Say I own my house in City A (for simplicity, no mortgage) and move to City B. If I rent my house for $X, I need to pay 30% tax on my rental income so I’ll be cash flow neutral if I can find a rental property in City B where I pay 70%*X (ignore other costs). But if I can swap my house in City A for a house in City B - contingent of finding a comparable house, for a comparable time period - no cash changes hands and I can effectively “rent” a property in City B valued at $X (instead of 70%*X)? Are there any tax implications that one needs to consider in a swap like this?

#2

You probably wouldn’t pay tax for a while due to depreciation for renting. You’d pay the tax after 28 years or at the sale

#3

That’s probably location-specific - I crunched some numbers in my case and you have very high rents but relatively low physical property value (a lot of the real estate value is in the land which I understand you can’t depreciate?). So you end up paying tax on net rental income right away it seems. Hence my interest in exploring swap options.

#4

Ah that’s true. The land value would be a key variable I forgot

#5

First—you do know that you don’t pay capital gains tax on the sale of a primary residence, right?

Does that change the game?

#6

limited to 500k.

also keep in mind comissions and fees. prolly 8% cut on total sale.

#7

Maybe I wasn’t too clear, but not considering a sale in this question. It’s not ownership swap. In scenario 1, I rent out my property, pay tax on rental income, use the net profit to rent another place for me elsewhere. In scenario 2, I just swap places with someone while we both keep ownership and no cash changes hands and no tax cash outflow. The question is whether that’s legal from tax perspective. There is no sale in either case so why do I care about cap gains tax.