How to Pay ZERO TAXES When Selling Real Estate (Yes, It's Legal!)

Here's how you can pay zero taxes when selling a real estate property even if used as a rental. Legal capital gains loopholes reveal by Toby Mathis in this video.
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Watch and find out how you can use the 121 exclusion correctly and how to sell your property to another taxable entity and more!
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ABOUT TOBY MATHIS
Toby Mathis, Esq. is the best-selling author of Infinity Investing: How the Rich Get Richer And How You Can Do The Same. Toby is a tax attorney and founded Anderson Business Advisors, one of the most successful law, tax, and estate planning companies in the United States. Learn more at aba.link/tobyaba
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The information provided in this video should not be construed or relied on as legal advice for any specific fact or circumstance. Its content was prepared by Anderson Business Advisors with its main office at 3225 McLeod Drive Suite 100 Las Vegas, Nevada 89121. This video is designed for entertainment and information purposes only. Viewing this video does not create an attorney-client relationship with Anderson Business Advisors or any of its lawyers. You should not act or rely on any of the information contained herein without seeking professional legal advice. of the information contained herein without seeking professional legal advice.

[@TobyMathis]

Want answers to your questions about this video? Schedule a complimentary consultation with our experts today! aba.link/ay4

[@taxintelinc.8674]

Easy to understand your explanation, thank you!

[@georgeannekaufman4867]

Just love a straight-talker like you. Thank you.

[@justinedge2536]

Wow great info Toby! Thanks for the video!

[@TobyMathis]

Hi Justin, I appreciate you taking time to comment and am glad you liked the video and found the content useful.

[@pharaoh9000]

Great info! Thanks for the video!

[@TobyMathis]

Glad to help and appreciate you taking time to comment!

[@johnsteele8382]

I would like to hear more about selling real estate that is just a building lot (no structure exists currently) and options for tax treatment.

[@tinacoladda8006]

I am BLOWEN AWAY! Incredible, thank you for sharing with us ordinary people !

[@eclipsegsx96]

GREAT VIDEO!

[@rrichard5515]

Outstanding information, I should have done this on a house I kept as a rental.

[@alexisguilliani3031]

Huge advise. Great information. This' a money maker. Thank you.

[@redvine4857]

Thank you for sharing knowledge 🙏

[@TobyMathis]

Always our pleasure!

[@karinarivas1064]

Excellent content. Thanks

[@TobyMathis]

Karina Rivas Glad to know you found the video helpful. We’re trying to release fresh new content a couple of times a week when possible.

[@fidelischuks6946]

Good video on Tax protection

[@pacoraban1009]

Thanks Great video

[@TobyMathis]

Glad you enjoyed it

[@truthseeker9688]

Could you give us ideas of what to do about capital gains when selling raw land?

[@chrisibrahim4519]

Great tips Toby!

[@TobyMathis]

Glad you like them!

[@eclipsegsx96]

I have a second house which i rented out for 1 year and but lived in it for 5 years(owned it for 6) now I want to sell it I don't currently live there can I use exc 121?

[@danielthommen8243]

Thank you for all the info... It is better to watch a video than reading it somewhere... I comprehend it better... So thank you for this channel...

[@TobyMathis]

Glad it was helpful!

[@YelenaFurmanova]

I have 2 unincorporated self supported humanitarian foundations, and rental house that cost 160k I transferred before from my trust to the first foundation as bonified gift with 0 price. It possible to do Bonified Sale for 500K from one foundation to another, not C-Corporation, to avoid Capital Gains Taxes?

[@dwstrummy1537]

This is potentially a mind blowing rescue technique. But it raises a multitude of related detail questions many of which are posted by commenters. Their questions are almost universally passed by and never answered by the presenter. I guess the only way to get your legitimate questions answered is to join his system "Platinum subscriber", perhaps, and pay for the advice. Makes one wonder what is the point. People try to help themselves by doing youtube research and sitting through hours of such instruction but get a real resolution or the help they need often seem to get put on the hook for someone else's pay day. Frustrating to say the least.

[@tw2800]

Toby is already giving alot of advice through his channel. How about looking up 121 exclusion tax? Do some research yourself.. He is a tax attorney by profession. He undoubtedly has clients that pay him for his counsel. Whatever you do for a living you have to get paid for your time and work. It unreasonable to assume that the free advice he already provides via youtube obligates him to provide more free advice by answering everybody's inquiries in detail. You have the internet and the library you can educate yourself on 121 exclusion tax or any other subject you wish. You'll get more applicable knowledge if you actively research. I'm looking up 121 exclusion tax right now.

[@aurelius7435]

Toby: would you be interested in doing an explainer on how the 121 exclusion works for someone who had been living in one unit of a duplex or triplex? And perhaps, how this strategy would play out in that situation?

[@303Estates]

Great video!!! how does this work on a large rental property portfolio sale? Thanks!!

[@KentonKnows]

I love learning tax strategies to minimize my tax burden. Thanks

[@pidgepagonis]

me too! ;)

[@kristyreynolds8334]

Wish I had known or been advised of this. Wow.

[@thuyyuen2897]

Thank you for great information. Should I do the same to the primary house to reset the cost basis since the house value went up a lot and still live in it after selling it to an LLC?

[@TobyMathis]

It really needs to be rented to a 3rd party.

[@PULSEXBillionzz]

Im completely confused . If i have a 500k exclusion why would I need to pay any taxes? 4 example my wife and i bought a property and sold it after 15 years, we made 400k. what tax's am i due? BTW we only have a VA disability income that's not taxed there4 no other taxes..

[@rodneyjones3078]

What happens when the S-Corp sales 15 years later, with all the depreciation you claimed? If its like the 100% deprecation in 1st year on certain vehicles you have been able to utilize recently, its just kicking the can down the road. I did this twice then close business to have a lot of gains in a year in had no income, sold vehicle for what was owed but shows a $35,000+ gain. Would depreaction of house for 15 years say $250k in your example , be $250,000 in gains?

[@tomassevero8172]

Does the sell need to be done before the 3 year of rental?

[@podocrypto6072]

Here's a question - We live in a house for 12yrs and there was a verbal agreement from our parents (they owned it) that they bought the home specifically for us and that the payments were to pay them back for the cash outlay that they bought the home with. So last year we completed paying the home off to them and they said the home is now yours and they "gifted" to us (again, over a year ago). Since then, we upgraded the home and now we want to sell it and eventually move near our parents. So the IRS has record that we've lived here over 12yrs, yet the home was actually only titled in our name just over a year ago (and titled in their name before that). There was no written agreement between us and our parents. Say the "Gifting" amount value was about $100k (which they paid to purchase it) and the value of the home was now about $400k. So with that, we can show we currently own it and can show that we've lived here over 12yrs (greater than 2yrs). Would that meet their requirements so we can have that benefit of not paying capital gains?

[@jo69817]

Why hasn't skool taught me this?!🔥🔥🔥😳

[@jamescrenshaw5097]

They were busy teaching you the spelling of “school,” and couldn’t get to tax planning 😀

[@countitalljoyfam]

@@jamescrenshaw5097 😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂

[@smathur555]

Really great info. Can we use an LLC instead of S-Corp?

[@aidacaceres6768]

For tax purposes, use your LLC as a S corp

[@ramiroburr6656]

Good work Toby as usual. Question: Do we have to keep the S-corp for the life of the "loan" and do we have to pay taxes if we dissolve it?

[@rbo2855]

Did you find out by any chance?

[@ramiroburr6656]

@@rbo2855 No reply as yet

[@jennybui5295]

Hello Toby ! Hope you are doing well sir ! I have crossed to your Channel and I have listened to some of your videos talking about taxes . I wanna say thank you for your efforts to put up those videos so people will understand a lot about taxes . I have questions and I would like to have your advice. I bought a house in 2015 and I have lived there about 2 years then move out of state . I let my cousin stayed and take care of the house for me . I recently refinance my house with cash out option and now the new loan is under rental property( last December 2021) By listening your video about exclusion when we sell our primary home . My question is if I convert my house back to primary home can I still qualify that exclusion when i sell my home in the future ? And how many year do I need to live in order to qualify? My basic is $600,000 and now the value is $1,200,000. Should I form it under S Corp ? Thank you sir

[@TobyMathis]

For a more timely response, we suggest asking your question here andersonadvisors.com/tax-tuesdays-questions/

[@soxchica8840]

So what happens with the money of the sale of the house? Can it be used to purchase another one?

[@Marvin-fn7ks]

As a Canadian with a seasonal Florida home since 2010 ,living in it for 5 months a year since then , if we sell the house would this apply ? We currently don’t pay US tax.

[@philstreza2886]

does it have to be an s corp or can you use a c corp? thanks

[@moiramuhs7015]

The S-corp once in the note/transaction. Can I sell the Note? Is there a tax hit or benefit to this. Looking at exiting a home with greater than $500k of equity and reviewing options.

[@dawntran3161]

Hi Toby,hope you have an answer to help me understand the law. I and my daughter bought a house together for her to live in as her primary resident. We sold the house less than 2 years (22 months) does she have to pay the capital gain for this house?she doesn’t buy another house yet . She decided to rent for a year or so before she buys again.thank you and hope to get an answer from you.

[@freech2]

I have a home with 1.2 million capital gain, so how can I combine section 121 and the 1031 exchange? Or some other solution.

[@lisagarmon3685]

I am a real estate broker. I was told its better to put fully active in a sale of rental or flip other then say passive. No LLC or Corp involved. That doesn't sound correct now. What are the pros and cons to being a broker in this circumstance?

[@tuttinmissy]

Great info as usual Toby..thank you! (I am a platinum client) you guys are rockstars!

[@TobyMathis]

Hi Christopher Horenburg, great to have you as a Platinum Member!

[@lavellnutrition]

Can the downpayment for the sale to the S-Corp be paid at the closing table from the Sale of the home from the equity in it?

[@monkeyofthehill8148]

Can we quitclaim (or whatever the best transfer method is) an investment condo to this new s-corp and then sell that to 1031 to buy our principal residence from ourselves via new s-corp and claim the 121? or that too far outside the box?

[@atexan969]

2 Questons: 1) We owned and lived in house #1 as PRIMARY for 8 years. Then leased it for 4 years. Moved back at the four year mark for 2 additional years as primary. ( I did claim depreciation during the rental period). If I sell it after I made it my primary for those last 2 years, will I owe capital gains? OR will it be washed off because I went back to live in it for 2 year as my primary? 2) owned house #2 as PRIMARY for 26 months, I can sell and avoid capital gains under the $250/$500 rule as you just described, correct? thank you so much!

[@classyincali9151]

Depends how much your gain is. You should be able to get the special exclusion.

[@drpando]

My property IS a rental. I did live there, but long ago when I was single. A 221 does not apply in my situation. Is a 1301 now the only tax haven I have available? The issue is, I WANT TO GET OUT OF THE RENTAL BUSINESS. I’m done dealing with tenants. The 1301 only allows for a like-kind forward push into yet ANOTHER rental property. That means I still have to pay property taxes each year to my local township and must also pay property insurance. Not to mention the work of maintaining the property. I have a major issue with the government putting their hands in my pockets. It was my hard work and taxed earned income that was used to purchase this property and maintain it. Now because I invested well, the government wants to stick their dirty hands in my pocket for my profit. they didn’t make the investment, I did.

[@vvjkumar]

What if the gain is more than 500K , say 1.5M ? Are there any techniques for this situation?

[@karenfaye3848]

Can you use the exclusion if I lived here 24 consecutive months but I bought it abs put it in my LLC not under my personal name Also I use to rent it while I was working in another state but am now living it it. Thank you for your answers

[@jamescrenshaw5097]

What is the particular advantage of the S Corp vs C Corp for this strategy? I know there is no SE tax to avoid, as rental income isn’t SE income. Even though little or no income tax payable on the rental income, are you just afraid of eventual double tax on any residual taxable income?

[@TobyMathis]

An s-corp would be more effective with the particular strategy as the long-term capital gains rate will reflect your own rather than the higher corporate long-term capital gains rate if the property were held in a c-corp.

[@juansanchez7769]

Wow 🤩

[@amp7816]

Hey Toby! What ramifications (if any) would there be if a buyer wanted to purchase a property but offers to give seller $100k outside of escrow and get a loan for the balance for the purpose of having lower property taxes for the buyer?

[@serkanmehmetkaanbey214]

Is the buyer a Somalian King?

[@TrueNovice]

If the owner of the private house he lived in and sells to an s-corporation that the owner controls or has an interest in. isn't that a related party transaction and the deduction would disallowed?

[@brookeenglish941]

in order to do this on primary home does it have to be paid off? what would you do if you have a current mortgage of $100,000 left?

[@elizabethbaird374]

Don’t quote me on it but I think with the installment sale the buyer is able to take over the mortgage.

[@paulgugger8987]

I had a major repair on a rental. $30k can I take the entire amount in the same year?

[@matinmohebi5466]

so this S-corp ever pay taxes ? or it files for bankruptcy and is forced to sell me back my home at 10 cents on a dollar?

[@peterduncan8545]

What if you purchased the property with conventional financing? You also don't mention anything about recordation and transfer fees to the S Corp. that I'm guessing you'll incur on both sides (seller and purchaser).

[@lgarcia323]

I would be worried about the increase in property tax once you sell to an s corp. If you initially purchased at 100k and now it's 700k the property tax bill is going to jump from 1k per year to about 8k a year. Or is there a way around this ?

[@edcho3569]

I agree. Would appreciate some additional guidance here for both what happens to conventional financing and readjust of property tax.

[@lavellnutrition]

Does the "S-Corp" have to qualify for the total value of the property or just come up with the downpayment?

[@tusharprasad2734]

Starts at 3:00

[@kapilchhabria1727]

Terrific stuff, but does this mean that real estate that fails the residency test (24 months out of the last 60) that is sold at a cost lower than the purchase cost, does not trigger a taxable event?

[@serkanmehmetkaanbey214]

No tax for the capital gain loss

[@IrshadKhan-rt9in]

Can you convert 1031 exchange to primary residence later in life?

[@lavellnutrition]

If as I single person the property will sell for more than the $250K exclusion can I give a gift of $16,000 to each family member upon the sale of the house to avoid paying capitol gain taxes on the property above and beyond the $250K or open an tax shelter account of some kind?

[@shereew]

My understanding is that if you sell your primary residence that was previously a rental after living there for 2 of the last 5 years, you only get 2/10 of the capital gain exclusion, not 10/10. Am I wrong?

[@tinainnca]

Great video. I followed everything you said, but have one question in regards to the new basis. To clarify, when the home is sold to the S Corp., the county tax basis would jump to the new established basis, correct?

[@robn.5932]

That’s exactly what I was thinking. No comments from the video creator ?

[@JasonLiske]

@@robn.5932 Ditto! Does anyone know the answer to this?

[@int_rbmeetings1874]

no reply from Anderson??...

[@WhatDavidDoes]

Wow, that's a great question. I'm thinking it would trigger a new County tax basis. OUCH!

[@buzybill]

Would you able to do this strategy with a partnership, not S corp? The partnership would be a subsidiary of a Wyoming holding partnership LLC.

[@fanyal554]

Question what if you sold before the 24 months??? With gains about 130k and keep it.

[@robert4639]

Does This 121 Exclusion Still Apply In January 2023

[@hankfowler8194]

How do you reduce taxes on inherited property in excess of 2 million ?

[@Dahmer_Jeff]

Income shifting 👍🏻🙏🏻

[@arunrajkarunakaran4739]

Correct me if I'm wrong - can't do this if one's paying mortgage on the house.

[@goldenbulletdriver]

Can you sell your home to an LLC treated as an S corp and then rent it from the LLC?

[@tommccormick7832]

If i have a rental property in an llc for 4 years and go to sell should i change to a s corp ?

[@TobyMathis]

Hi Tom, we recommend speaking with one of our advisors for any legal advice. Here is the link to schedule a free strategy session, aba.link/tobyss. Or you may call to speak with an advisor at our toll-free line, 800-706-4741.

[@jptrends]

Normally for holding we would use an LLC. Could we do this with an LLC and not an S-Corp?

[@classyincali9151]

I believe he said LLC or S-Corp

[@elizabethbaird374]

Toby, what about s corp salary requirements?

[@TobyMathis]

S corps only are required to pay a salary if there are distributions of net profit. Zeroed out return equals no salary requirement.

[@reiryan1302]

Who is the owner of that entity I suppose to sell the house to? Am I the owner of the entity buying the house from Myself?

[@kshitiz06]

Is there an income limit for claiming depreciation? I have a 9-to-5 job that earns me 170k a year. I recently purchased a rental house. Can I claim depreciation on it? Or does my 170k a year income prevents it? I googled it. And in almost all articles about depreciation says “if your income is 150k or above, you cannot claim rental loss”. This confused me. Articles are about depreciation. But when I read the part I am interested in, they switch the language to “rental loss”. Unless depreciation is considered part of rental loss, I don’t see why everyone would put that in an article about depreciation.

[@TobyMathis]

No. There is no limit on depreciation. There is an exception to using passive losses generated from rental activities called active participation that phases out from $100-$150k and is limited to $25k of Passive Loss use against other sources of income. Unused losses carry forward.

[@OzyOzySM]

what if you have 5 properties and you want to do this before you start renting them? I think this work with only 1 property each 2 years ! so I guess will need 10 years to get all the 5 properties under LLCs

[@TobyMathis]

Correct. 1031 exchanges are also an option if you are renting out the properties.

[@ramakrishnay12]

Can you own the S-Corp LLC or does it have to be someone else. Also what if I have a loan on my property? Do you know who can help me with this? Thanks

[@TobyMathis]

Ramakrishna Depends on the transaction. Selling to an S-corp to grab the 121 exclusion can be done with your own S-corp. I would actually talk to a lender on how they would view the transfer. They are all different depending on the loan and whether it is recourse, non-recourse, personal or business. Call my offices if you want help. We have over 200 employees who can help:-) 1-800-706-4741.AndersonAdvisors.com

[@vinayrajpillai9808]

Hey Toby and Rk, can't RK put the house into a Land trust and then transfer the beneficial interest of the land trust over to the S-Corp?? Selling the house subject to the underlying loan ofcourse.

[@charlesmast3670]

How do I get in touch with you

[@Dahmer_Jeff]

Why an S Corp, why not a land trust. And why fair market value and not $1

[@joediamondcpa796]

Bad idea EVER putting any real estate in an S corp! for many reasons.

[@wendymoore8759]

Question: my dad had a condo I rented it off of him for 5 yrs , now I've bought the condo out right no mortgage , but it shows I've only been in the condo for 1 yr I want to sell due to medical reasons , it can be sold for 265k , can I get the 121.

[@TobyMathis]

Could you reconstruct your question?

[@terrycrawford6740]

If in California, your tax basis is now $600k instead of the $100k.

[@JasonLiske]

yeah that's what I was wondering, the tax basis jumps to new sales price. How much does this offset the benefits?

[@brucecodding3415]

Toby, I am married and have an adult son who will inherit our residence when my wife and I are deceased. You didn't say who would be the owner(s) of the S-Corp. Could my son be the sole owner of the S-Corp?

[@tremellturner370]

I am a platinum client. I bought my home in Oct 2014. I lived in that home until Dec 31, 2016. In Jan 2017 I turned the home into a rental. I now want to sell the in Sept 2020. Will I qualify for the 121 exclusion.? If not is there a way to avoid those tax? Thanks Toby..

[@deborahsavageshaffer6846]

Two years ago I bought a vacation rental property with a 1031 Exchange. I have done nothing but lose money on the property and now I want to sell it and get my money for it back. I am single. My AGI is less than $47000. How do I do this without paying Capital Gains?

[@TobyMathis]

I highly recommend you request a free 45-minute consultation to discuss our proven asset protection and tax strategies and how they apply to your unique situation. aba.link/ay4

[@lucikducik3279]

Can you sell house to your own Scorpio.

[@user-ty2uz4gb7v]

How many times will the IRS audit you after this.

[@tuttinmissy]

Are rent payments taxed as ordinary income...or no because it's under an installment?

[@TobyMathis]

Christopher as a valued Platinum Member remember that you get your questions answered directly by our advisors. Just reach out via our Platinum portal area and ask away! :-)

[@classyincali9151]

Rent is rent, why would an installment agreement matter?

[@johnqlunchbucket]

The only problem is that the property taxes will 6X...🤔

[@AngelAnkitJain]

Hi Toby, Very good information. I have a primary house and I would like to benefit from 121 exclusion. I have a mortgage and a credit line on my primary house. I am not in a position to pay the loans and I would like to refinance or transfer loan to LLC. what are my options?

[@greggmcclelland8430]

In real terms, wouldn't that sale at fair market value raise your Property tax basis on the property? You lose the homestead exemption and the property taxes would go up? No free lunch here.

[@cameron9643]

Now u can start doing 941s and never can change the title of the house.

[@daybyday3067]

I appreciate your talk. But can you use better pens? I cannot see your writing on the board well.

[@HappyPenguin75034]

Basis is when you make it a rental. Basis could be $600k if you did it at that point. Right? You said 100k but didn’t mention when you converted.

[@mayurgai]

This doesnt work if the house has a mortgage on it !!

[@Living4601]

Why an S-Corp and not a Partnership?

[@Living4601]

And if you sell the property years later, you’d have to pay taxes on the distributions in excess of basis trying to get the cash out of the S-Corp. Need to consider the big picture.

[@lauriekline472]

I think you could have simplified this explanation. You made it more complicated than it really is.

[@vivianvo8819]

is the 500K applied to a lifetime?

[@classyincali9151]

You can take this amazing break as many times as you like as long as it's two years between sales! :)

[@ursulamurtagh6969]

If a person who has got a lot of Health Care Issues and is in a wheelchair and I am in a nursing home for the past 5 years and I am thinking about getting a van and I'll get it Insured in my name and I will Insure my PA in the van as a driver and she could drive me to town and she could drive me to apartment

[@ripvanwho]

Wouldn’t this only work if you own it, but it is a great idea!

[@strokerace4765]

Bought this house in 1999, been renting it out since 2003, claim about $7,000 in depreciation a year..... I bought the house for $110,000 if I sale it for $150,000 would the IRS take all the $40,000?

[@johndustoncpa5302]

they'll tax that 40k gain and deprecation recapture but no they wont take it all. How much they take depends on your income bracket

[@classyincali9151]

@@johndustoncpa5302 My understanding is depreciation is recaptured at 25% tax rate which is ostensibly favorable as you likely would have paid ordinary income tax on the gain. In this case if he took 10 years of depreciation he would have to recapture $70,000 x 25% = $17,500