RE Investment Hypothetical ...CPA's/ Lawyers: Is this Possible??

Does anyone know if this is a possible tax loophole? So when you hold a property as an investment, you get to claim a deduction for the depreciation right?.. but at point of sale, that deduction is eventually re-captured and taxed by the man. Is the following possible?? 1. Buy a place owner-occupied and live their until you clear the window that allows you 200k capital gains tax-free on the sale of the property. 2. “Sell” the property to your own LLP at an inflated price (not absurd… but ~25% over mkt) 3. Rent property and account for as usual. 4. Sell the property after 5-6 yrs (when, under an assumption of 4% annual appreciation rate the mkt price is on par with the original purchase price) and earn a tiny, if any capital gain- preventing any of the depretiation from being re-captured. Esencially, this would transfer the profit from t+8 to t+2 and make it tax free as an owner occupier + still allow the depreciation deduction benefit that a homeowner is not allowed. hmm…??

Pigs get fat and hogs get slaughtered. Probably you mean an LLC and claiming that a passthrough entity was somehow different from you when you are living in the house would probably not go over well. There are easier ways than this to do the same kind of thing.

I wouldn’t be living in the house. I would be out of state and renting the property out. The maneuvering would be the mark-up in a not so arm’s length transaction that would sell the property to a partnership in which I was a beneficiary.

One hitch I see is that for a 1031 (which I know you are not doing) the sale has to be an arm’s length transaction. So you can’t do a 1031 with an LLP you created. I would guess (hope) that the same applies to the exclusion of capital gains on the first $250k (not $200k like you posted). So, to verify this just check your schedule D instructions to see if you can exclude the gains from a sale to a related entity. I bet you cannot.

If you don’t live in the house you cannot exclude the capital gains. YOu have to have lived in the house 2 out of the last 5 years.

I would live in the house for two years before selling. More than anything this is just an exercise to see if it were theoretically possible. I assume there would be something to prevent this sort of tax-evasion- and per virginCFAhooker it appears to be taken care of.