My wife and I have a property that we want to sell for capital gains tax reasons (this is the last year to qualify for the 2 out of 5 rule). We were thinking about just selling it, but my parents have expressed interest in taking it over. If we choose that route, it seems like there might be two options.
We can just straight up sell it to my parents for a proper price. We’d probably have to pay fees to do this properly (i.e. legal fees) but it seems straightforward and we can take advantage of the 2 out of 5 rule.
We can gift the house to my parents, and then in turn my parents can gift some money to us. This potentially might save some paperwork and fees, but my parents won’t get a step up on the cost basis and will owe more capital gains in the future when they sell it. Plus, we’d all need to dip into the gift tax lifetime exemption amount to avoid taxes. And we’re basically not using the 2 out of 5 rule at all. And I’m not sure how legal this really is.
Am I missing anything? Are there other options or considerations we should be thinking about?