Selling Home and attorney holds funds in a escrow account til another property is purchased.

Previously my husband and I had sold some property and our attorney put the money in an escrow account until we found another piece of property to purchase. That way we never touched the funds and didn’t have to pay taxes. I don’t remember what this is called. We have a rental home that we are considering selling and would like to handle this in the same way. Can you tell me what this called and what is the time limit the funds can be held in escrow?

Asked on June 29, 2009 under Real Estate Law, South Carolina


B. B., Member, New Jersey Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

I am not at all sure that this would work the same way with a rental property.  Unless the tax law has changed since the last time I looked (which is always possible, tax laws change fairly frequently), you are allowed to "defer" (put off) capital gains on the sale of your home, by re-investing the money in a new home for a larger price, but this isn't available for rental or investment property that isn't your primary residence.  Ordinarily, you have two years to buy your new home;  I'm not sure whether having your attorney keeping the money in escrow can be used to extend that time.  You might want to talk to your CPA or tax preparer about this one.

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