If I sold the property to someone I know and then bought it back in 18 months or 2 years, is that legal?

I own a residential condo in Florida which I maintain as a rental property. Today the property is worth $60,000 less than I owe on the mortgage. Because of the unused accumulated passive loss that I have, if I sold the property, I would recoup $60,000 in refunds from the IRS and state (at the time of sale, I would have in excess of $210,000 in passive loss @ 30% = $63,000). If I sold the property to someone I know and then bought it back in 18 months or 2 years, is that legal? By doing so, I would then own the property for approximately it’s real value instead of being $60,000 under water. Pl

Asked on March 16, 2012 under Real Estate Law, Florida

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Assuming you have an actual arms length deal for a sale of your property in Florida with an express option to buy back where such option is clearly stated in the purchase contract and placed in an established escrow, the sale is legal as well as the option to buy back.

What might not be allowed is how you allocate your loss and possible basis on any exercised buy back based upon what you have written. For a definitive answer on that issue is beyond the scope of the answer to this question. I suggest that you consult with a reputable tax attorney on the subject.


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