Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 19, 2006.

DEAR BOB: I bought a rental property in 1991, which I sold for $450,000. To avoid capital gain tax, I used an Internal Revenue Code 1031 tax-deferred exchange to buy another rental property for $450,000. After renting it for 12 months, I moved in and have lived in it for 24 months. If I sell this property at the same $450,000 price, will I owe any capital gain tax since I made no profit? Is this a good way to avoid capital gain tax? –Sim Y.

DEAR SIM: Nice try! But Uncle Sam is way ahead of you.

Your adjusted-cost basis for the $450,000 rental house you acquired in the Internal Revenue Code 1031 tax-deferred exchange was not $450,000.

Purchase Bob Bruss reports online.

Instead, it was your $450,000 purchase price minus the deferred capital gain on your old rental property minus the depreciation you deducted on the acquired property during the 12-month rental period before you moved in to make it your principal residence.

Although you owned and occupied the acquired property as your principal residence for the last 24 months, if you wish to claim the Internal Revenue Code 121 tax exemption up to $250,000 (up to $500,000 for a married couple filing jointly) you must own the acquired property at least 60 months before sale.

I hate to break the bad news, but the depreciation you deducted will be taxed at the special 25 percent federal “depreciation recapture” tax rate when you sell your current property. For full details, please consult your tax adviser.


DEAR BOB: We recently bought a house and let the sellers rent it back for a month for which they paid us rent. Does this rent-back count as rental income on our income tax return? Does having them live in our house affect deducting mortgage interest for that month? –Robert R.

DEAR ROBERT: Your mortgage interest and property taxes are always tax-deductible.

However, the rent you received, because the rental term exceeded 14 days, must be reported on Schedule E of your federal income tax return where you can also deduct the applicable expenses for the rental period. Your tax adviser can give you more details.


DEAR BOB: My husband died about two years ago. He left me a life estate in his house. I am 68, but I want to move to Georgia to be near my children and grandkids. A neighbor offered me $1,000 for my life estate. Isn’t it worth much more than that since I am in excellent health and my family members live into their 80s and 90s? –Maida T.

DEAR MAIDA: Please read the exact terms of your life estate. Some life estates specify that if the life tenant permanently moves out, the life estate terminates. That means your life estate becomes worthless when you move out of the house.

However, if your life estate doesn’t terminate until you die, you can sell your life estate interest to the neighbor so he can rent or occupy the house. But that buyer shouldn’t pay very much because when you die, the life estate terminates.

Although you say your family members live into their 80s and 90s, you could get hit by a truck while crossing the street, thus terminating your life estate in the house. For full details, please consult a local real estate attorney.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription