This question applies to a property in Washington State in the the United States, although I'm curious how this might be handled on other regions.
I'd like to adjust the cost basis of my house prior to renting it so that it reflects the house's appreciation. Here are my motivations:
- many years down the road when I sell it, I'd avoid paying taxes on the appreciation.
- I'd like to benefit depreciating a larger asset.
Is there is a standard way to doing this?
It would be similar to selling the house today (utilizing the Capital Gains Exclusion) and then buying a house in the same neighborhood in order to rent out.
The property's mortgage could be paid off to make the transfer easier.
A story will highlight why I am asking this question:
I have a house in another state that I rent out. I had originally lived there, and when I moved the house was worth about $250k more than what I bought it for. I have been renting that house for 5+ years at this point. During those 5+ years the real estate market has been flat. If I were to sell that rental house today, I would be paying taxes on the $250k capital gain. If I could go back in time I would have sold the house instead of rent it, enjoyed the capital gain exemption, and then purchased a different house for about the same value. This would allow me to sell the house today and pay very little taxes