How To Legally Avoid Paying Taxes On Home Sales ?
OK here’s the situation. I am interested in moving back to the other side of the state (MO) in a year or two and am trying to figure out how to make the most $$ of the properties I have here. I have read on this forum that I need to hold onto property at least one year and a day to avoid long term capital gains. I can do that on some of my newer properties if needed. I have also heard/read about selling your home and not having to pay taxes on the income. Something about living in the property for at least 2 of the last 5 years. Can someone give me guidance on where I can read about this. My thought is, if this strategy is correct, then I can move into my rental house next door, start my two year residency there, put my present home up for sale and if it takes some time then I would have already been in the second house part of the two year time frame. Could I rent my present home for a year before trying to sell it - then I would only have one year left on the two year time frame of staying in the rental house next door. If I did this then I can possible see selling two houses in two years without having to pay taxes on them. Someone give me some guidance please. This might not be the correct forum for this sort of question so please feel free to PM me if you have suggestions. As I read the other - jail time and $5.00 a day is not an option 
Thanks for your help
You can sell one now, move into the other for two years, then sell the second one- gaining up to $250,000 per taxpayer of appreciation tax free on each one. If your wife or co-owner does the same, that is a million dollars of tax free appreciation in two years. All you need are two properties that have appreciated that much...
Chris
Karin,
I hope you are not taking tax advice from this agent. If so, be prepared for a big surprise when you get audited.
Yes, spouses who live apart can each have their own primary residence. Your agent is ignoring half of the two year rule -- not only must you own the property, you must physically occupy the property as your primary residence for two of the five years prior to sale to qualify for the capital gains exclusion. Just using the property as a mail drop does not pass muster with the IRS.
Take your tax advice from a licensed tax professional -- someone you can hold liable if their advice is wrong.
For first hand info and to read to your hearts content go to http://www.irs.gov slash publications slash p523 slash index. I then went to the FAQ number 10 Capital Gains losses and sale of home.
Following are some excerpts from the irs publication 523
To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:
• Owned the home for at least 2 years (the ownership test), and
• Lived in the home as your main home for at least 2 years (the use test).
The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous.
Here is the link but not sure I can post it http://www.irs.gov/publications/p523/index.html
Both NewKidinTown3 and Chris have done a fine job of answering our questions. I’m just one of them guys who also like to read more.
This is a GREAT site