8/15/23 – How to avoid Capital Gains

8/15/23 – How to avoid Capital Gains

President | Loan Officer
Mike Meena
Published on August 15, 2023

8/15/23 – How to avoid Capital Gains

I put a version of this message out at least two times a year because it is important. CAPITAL GAINS and CAPITAL GAINS exemption.


Single people get a $250,000.00, and married couples get a $500,000.00 exemption if they live in a house for two years. They will get the exemption if they move out and sell two years and 364 days later. If they sell three years and one day later, they will not get a tax exemption! If they live in a house for five years, move out for seven years and rent it, then move back in for two years and sell it, then do they get the total exemption? You are correct if you said no! Will they get a partial exemption? YES! Partial, in this case, is 50% up to their limit.


More importantly, we see people with significant potential capital gains who want to buy up, down, or sideways. What can they do if they make more than the exemption?

One option is to see how much they put into the property since the purchase that would be considered capital improvements.

Then take the commissions from the agents and all other expenses and see if they are still over the limit. If that is still the case and they don’t want to pay taxes on that amount, they could feasibly pull cash out of their house and rent it! Buy the home they want to buy for themselves and hope that the renters can cover their payments. I have a client doing this now.


Marsha and Greg Brady have lived in their Studio City home for over 40 years. They paid $38,500, and the house is worth $3.5 Million. If they sell, they will have to pay capital gains of about $2,500,000.00 after improvements. Capital Gains will cost them about $750,000.00. Greg and Marsha now want to move to a Single Story near their kids in Redlands, CA. They are buying a house there for $1,100,000.00. Their home is paid off, and they have income and don’t necessarily want to be a landlord, but they also don’t want to pay $750,000.00 in taxes. Therefore they decide to rent their house for a mere $9800.00 a month which will cover their refinance loan payment, and they will buy Redlands with the cash. In two years, they will sell Studio City and buy an apartment with an approximate 5% Cap rate, and if they pay $3.5 Million, they will receive about $14,500.00 per month NET! They will also be able to depreciate the property and get a write-off for about $100,000.00 per year from depreciation alone! When they pass away and leave the money to their cousin Oliver, all the properties will go to a new stepped-up basis and Oliver can sell them and pocket the cash! They will never have to pay any taxes, and either will cousin Oliver. There are other options for a 1031 exchange, like a DST (Delaware Statutory Trust), but this is a simple way to make it happen, and it gives you 100% control too!


Now, let’s look at this from an Agents perspective. You were going to get a 3.5 Million Dollar Listing, plus you were going to get a $1.1 Million buyer. Instead, you get a 1.1 Million Dollar buyer, a $3.5 Million listing in 2 years, and a 3.5 Million dollar apartment purchase in a few years, and you saved your client $750,000.00 in taxes, and they referred you a bunch of their friends in the meantime.


Knowledge is power and will help you build your referral network. You may never encounter this situation in your career, or you may come across this a dozen times. It would help if you were ready and prepared when you do, and that is why I put it here.


Interest rates are not low anymore, Condos are causing havoc, but people are still buying. Here are some rates as of today:

  • 12-day escrows if your buyer is pre-approved - Conventional / FHA / Jumbo / Bridge
  • We do loans in all states, so call me with anything you need.  
  • Government Loans (FHA / VA) are in the high 5’s and low 6’s.
  • Conventional Loans up to $726,200.00 are in the low to mid 6’s and low 7’s.
  • High Balance Loans $726,201.00-$ 1,089,300.00 are in the 6’s and 7’s
  • Jumbo loans above $1,089,300 are in the 6’s and 7’s
  • Bank statement loans - They are available with 10% down again! 7’s and 8’s + depending on down and credit score.
  • No income qualifier – 20% down with reserves! In the 9’s!
  • 0 down loans are in the mid to high 6’s – 660 credit score min right now, up to $740,000.00.
  • Private Money lenders - hard Money Loans – 35% down!
  • No Ratio Loans 30% down
  • Debt Service Coverage loans with as little as 25% down
  • Bridge Loans - are typically 7.99% with limited fees – But they get you where you need to go!
  • 0 down California Dream for all Equity Share – Postponed until 2024!
  • 3/2/1 Buydowns 2/1 Buydowns and 1/0 Buydowns are available at great start rates!

Interest rates are subject to change without notice! Above are LA County Loan Limits.


I am around all week if you have any questions or if someone is interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. Please text me at 661-714-6258 or email me at Mike@AugustaFinancial.com. Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!

President | Loan Officer
Mike Meena President | Loan Officer
Click to Call or Text:
(661) 714-6258

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