Q. My friend invested in rental properties in a resort area and has large unrealized capital gains. Is there a tax planning vehicle to delay or eliminate these gains on death?
A. Ah yes, the age-old question of how to eliminate capital gains on death. It's possible to defer the tax on any capital gains that may accrue from this day forward. The challenge is minimizing the tax hit on the growth in value to date. Some of the more common tax planning techniques to reduce the tax liability accrued to date on real estate include using the principal residence exemption (which will not be available on rental properties, as in your friend's case), maximizing the adjusted cost base on the property by keeping accurate records of all capital improvements and records of any capital gains election made back in 1994 (when the $100,000 capital gains exemption may have been used to shelter part of the gain on the property from tax), or buying life insurance to cover the tax bill.
As for capital gains that may accrue from this day forward, it may be possible to defer the tax on those gains through an estate freeze.
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