Gain on sale of house

[Unregistered]

If I sell my house and put all of the gains into a new house am I still responsible for the capital gains tax?

[Armando Beaujolais]

Home Sale

You're looking at the old rules. In 1997 the rules for exclusion on the sale of a principal residence changed.

IRC section 121(a) reads:

"Exclusion. Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayre's principal residence for periods aggregating 2 years or more."

If you've owned and lived in the home as your principal residence for two out of the prior five years, you have an exclusion from income of $250,000 ($500,000 if married filing joint). If you have taken any depreciation along the way for business use of the home, etc., you will have to report gain up to the amount of depreciation taken (unrecaptured section 1250 gain, capital gain subject to a maximum rate of 25%).

In fact, when you close, if the proceeds from the sale are less than $250,000 ($500,000), the closing company probably won't even report the sale to the IRS because the amount's not includable in gross income.

[Unregistered]

gain on sale of home

I know about the $500,000 exclusion. My gain will be about 1.7 million. Can I postpone that gain into new property I am looking at over on the east side?

[Armando Beaujolais]

My prior response assumed the house you're talking about is your personal residence. If that's true, no, you can't defer gain by putting it into another house. You will get an exclusion of the first $250,000 ($50,000 MFJ), but the rest will be taxable capital gain.

If the house is investment property or business property, there is a possibility of a like-kind exchange under IRC section 1031. But be careful. It has to be a trade of property. You touch cash, you pay tax. Use a qualified intermediary if that's the route you're going.

[Unregistered]

would lov to n

so someone owh just live in the house one year and gains $250 000 after only one year would be made to pay highter txes

[Unregistered]

mother-in-law selling house $650 K. father-in-law passed away 2 1/2 years ago. Does the $250 K deduction apply or the $500 K. If $250 K only, it seems like a death tax

[Bill Tubbs]

only $250k

mother-in-law selling house $650 K. father-in-law passed away 2 1/2 years ago. Does the $250 K deduction apply or the $500 K.

What was original basis?

How much did mother-in-law inherit from father-in-law at his passing? (the percentage depends on if there were in a community property state, and if mother-in-law was married to father-in-law at the time he died.) That could increase the basis.

Bill

[Bees Knees]

mother-in-law selling house $650 K. father-in-law passed away 2 1/2 years ago. Does the $250 K deduction apply or the $500 K. If $250 K only, it seems like a death tax

Bill is right. Step up of basis can be better than the $500,000 exclusion. Assume house was originally purchased in 1964 for $10,000. Husband dies in 2003 when the house was worth $640,000. Assume non-community property state. The surviving spouse's basis in 2003 is $325,000 (50% of 10,000 + 50% of 640,000).

House sells in 2005 for $650,000. Taxable gain on sale is $75,000 (650,000 minus 325,000 basis minus 250,000 exclusion). Had the husband still been alive in 2005 when the house was sold, the taxable gain on the sale would have been $140,000 (650,000 minus 10,000 basis minus 500,000 exclusion).

[theresa d]

pre 1977

be aware that pre 1977 spousal joint tenancies receive 100% step up in basis. the tax court and two federal appeals courts allowed a surviving spouse a 100% stepped up
basis if the spousal joint tenancy was created before 1977. the IRS has decided to follow he tax court decision and will no longer litigare the issue

[Bees Knees]

Good point.

Change my 1964 example purchase date to 1978. Then the numbers and theory should be correct.

[Jason]

Gain on Sale within 2 years

I sold my principal residences with only living there for 18 months. I will have a $40,000 gain. How should I treat this to avoid paying the most tax?

[Uncle Sam]

Gain on Sale Within 2 years

That depends upon what your purpose in moving is. If it's due to job change or unemployment, health related issues, or certain "unforeseen circumstances" you might be able to avail yourself of a prorated portion of the exclusion.

[jainen]

the way it is

>>How should I treat this<<

You must treat it the way it is -- you can't really do tax planning after-the-fact. There is still time this year for other planning. Normally you can't take a large loss from stocks that have gone down in value, but with $40K gain to offset them, this might be the year for that. You might look at non-refundable credits that are only available in years when you have a higher tax.

[Unregistered]

[QUOTE=Bill Tubbs (the percentage depends on if there were in a community property state, and if mother-in-law was married to father-in-law at the time he died.)[/QUOTE]
ONLY IF IT WAS TITLED AS COMMUNITY PROPERTY. Traditionally property held joint with right of survivorship is not community property and receives only the 1/2 step up.