NEED some info on capital gains tax.
03-30-2006, 06:04 PM
#1
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NEED some info on capital gains tax.
Guys and Gals!!! Need any info possible on Capital Gains Tax. I am listing my town home by next week on the market. My agent said that I need to pay a 15% Capital Gains Tax because I only lived in my town home for 18 months and the requirement said at least lived/owned the property for at least 2 years.
I have no problem in paying it if it’s really required. Of course I wanted to pocket as much profit as I can also for a down payment on a new house. I will be buying a bigger home for my family, 2 growing kids in a 2 bedroom town home won’t work anymore. I just have a few questions that are bothering me right now.
For example.
Sold the home for $300,000
minus commission (6%) and excise tax(1.78%) will be $276,660
minus $215,000 loan balance will be $61,660
1. Is the 15% deducted on the $61,660?
2. OR deducted on the $85,000 price difference?
3. Does the IRS get the 15%? On closing?
4. Are there any available exemptions?
Any info will be appreciated.
I have no problem in paying it if it’s really required. Of course I wanted to pocket as much profit as I can also for a down payment on a new house. I will be buying a bigger home for my family, 2 growing kids in a 2 bedroom town home won’t work anymore. I just have a few questions that are bothering me right now.
For example.
Sold the home for $300,000
minus commission (6%) and excise tax(1.78%) will be $276,660
minus $215,000 loan balance will be $61,660
1. Is the 15% deducted on the $61,660?
2. OR deducted on the $85,000 price difference?
3. Does the IRS get the 15%? On closing?
4. Are there any available exemptions?
Any info will be appreciated.
03-30-2006, 07:38 PM
#2
Senior Moderator
Should be on the 61K... IRS won't get the 15% on closing (I don't think), but you'll be required to file it as income in your taxes next year...
Read the IRS FAQ's here:
http://www.irs.gov/faqs/faq10-1.html
Scribby pointed out the new tax laws to me in this thread:
https://acurazine.com/forums/showthr...hlight=capital
Read the above thread, and then look at the IRS site... You'll probably want to read Publication 523...
Read the IRS FAQ's here:
http://www.irs.gov/faqs/faq10-1.html
Scribby pointed out the new tax laws to me in this thread:
https://acurazine.com/forums/showthr...hlight=capital
Read the above thread, and then look at the IRS site... You'll probably want to read Publication 523...
03-31-2006, 08:23 AM
#4
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Yeah that sounds like BS to me, but I might be wrong. I was always under the impression that when you sold your PRIMARY residence, you're exempt from taxes up to 500k, no matter how long you've been there. But I don't know i guess....
found this on the irs site:
found this on the irs site:
Amount Realized
The amount realized is the selling price minus selling expenses.
Selling expenses. Selling expenses include:
Commissions,
Advertising fees,
Legal fees, and
Loan charges paid by the seller, such as loan placement fees or “points.”
The amount realized is the selling price minus selling expenses.
Selling expenses. Selling expenses include:
Commissions,
Advertising fees,
Legal fees, and
Loan charges paid by the seller, such as loan placement fees or “points.”
Last edited by Mike97 3.0P; 03-31-2006 at 08:27 AM.
03-31-2006, 08:35 AM
#5
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Originally Posted by moeronn
I haven't read the above links, but I thought as long as you roll the gains into a new home, you won't be taxed on the gains.
I would think it would be the 61k MINUS any payments you have made. Technically it should be on the appreciation of the house...not that bunched in on your principal payments.
03-31-2006, 11:17 AM
#6
is learning to moonwalk i
Originally Posted by Mike97 3.0P
Yeah that sounds like BS to me, but I might be wrong. I was always under the impression that when you sold your PRIMARY residence, you're exempt from taxes up to 500k, no matter how long you've been there. But I don't know i guess....:
I'm not sure what happens if you lived there less than the 2 years, but it may be tax exempt if rolled into another home. That is how the law used to be.
03-31-2006, 03:03 PM
#7
Team Owner
There is a loophole in the 2 year rule. If you can say that changing jobs forced you to move you can get out of paying the tax. There are rules around this though. I think the new job has to be > 50 miles from the old job.
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04-03-2006, 08:16 AM
#8
Originally Posted by doopstr
There is a loophole in the 2 year rule. If you can say that changing jobs forced you to move you can get out of paying the tax. There are rules around this though. I think the new job has to be > 50 miles from the old job.
We are moving to Jacksonville, FL because of job moves. My wife is getting transferred to Jacksonville NAS, and I will be getting transferred to Cecil Field (about 11 miles from NAs Jacksonville). So this move is related to our jobs. Does this mean that we can avoid the capital gains taxes on our house? I don't know.
We closed on this house on June 24th, 2004. In order to avoid the capital gains taxes, we have to close no earlier than June 26th, 2006. If anyone wants to get into the house sooner than that, then they will pay our capital gains taxes for us.
My financial advisor told us that the capital gains taxes is PRORATED for the amount of time that you have left on the house before two years. So if we sold the house before June 26th, 2006 (say on June 1st, 2006), we would have been in the house for 707 days (vice 732 days if we had stayed for two years).
Try to follow the math here:
Prorated amount of time LEFT on the capital gains taxes: 1 - 707 days/732 days = 0.0342
Closing costs on June 24th, 2004 = $9750
Capital gains tax rate = 0.15
Sale price of home = $320 (assumption)
Flat fee commission = $6495
3% buyer's agent commission (assumption, if we accept a buyer with an agent) = 0.03 * $320K = $9600
Bought home for $230K.
Appreciation = $320K - $230K = $90K
Net increase = $90,000 - $9750 (2004 closing costs) - $6495 (2006 flat-fee commission) - $9600 (2006 3% buyer's agent commission) = $64,155 (this is the cost that the capital gains taxes would be on)
Capital gains taxes amount = $64,155 * 0.15 * 0.0342 = $329.12.
04-03-2006, 09:41 AM
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Found it. On IRS.GOV search for "capital gains home"
Use Worksheet 3 to figure your reduced maximum exclusion.
A change in place of employment, health, or unforeseen circumstances (whichever applies) is considered to be the reason you sold your home if either of the following is true.
Your home sale qualifies under a “safe harbor.” A safe harbor is a set of certain facts and circumstances that qualifies you to claim a reduced maximum exclusion. The safe harbors are explained in detail later.
The primary reason you sold the home was a change in place of employment, health, or unforeseen circumstances. Factors that may be relevant in determining your primary reason for sale include whether:
Your sale and the circumstances causing it were close in time,
The circumstances causing your sale occurred during the time you owned and used the property as your main home,
The circumstances causing your sale were not reasonably foreseeable when you began using the property as your main home,
Your financial ability to maintain your home materially changed,
The suitability of your property as a home materially changed, and
During the time you owned the property, you used it as your home.
Change in Place of Employment
The sale of your main home is because of a change in place of employment if your primary reason for the sale is a change in the location of employment of a qualified individual.
Qualified individual. For purposes of the reduced maximum exclusion, a qualified individual is any of the following.
You.
Your spouse.
A co-owner of the home.
A person whose main home is the same as yours.
Employment. For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. It also includes the start or continuation of self-employment.
Distance safe harbor. A change in place of employment is considered to be the reason you sold your home if:
The change occurred during the period you owned and used the property as your main home, and
The new place of employment is at least 50 miles farther from your home than the former place of employment was (or, if there was no former place of employment, the distance between your new place of employment and the home sold is at least 50 miles).
Example.
Justin was unemployed and living in a townhouse in Florida that he had owned and used as his main home since 2004. He got a job in North Carolina and sold his townhouse in 2005. Because the distance between Justin's new place of employment and the home he sold is at least 50 miles, the sale satisfies the conditions of the distance safe harbor. Justin's sale of his home is because of a change in place of employment and he is entitled to a reduced maximum exclusion of gain from the sale.
A change in place of employment, health, or unforeseen circumstances (whichever applies) is considered to be the reason you sold your home if either of the following is true.
Your home sale qualifies under a “safe harbor.” A safe harbor is a set of certain facts and circumstances that qualifies you to claim a reduced maximum exclusion. The safe harbors are explained in detail later.
The primary reason you sold the home was a change in place of employment, health, or unforeseen circumstances. Factors that may be relevant in determining your primary reason for sale include whether:
Your sale and the circumstances causing it were close in time,
The circumstances causing your sale occurred during the time you owned and used the property as your main home,
The circumstances causing your sale were not reasonably foreseeable when you began using the property as your main home,
Your financial ability to maintain your home materially changed,
The suitability of your property as a home materially changed, and
During the time you owned the property, you used it as your home.
Change in Place of Employment
The sale of your main home is because of a change in place of employment if your primary reason for the sale is a change in the location of employment of a qualified individual.
Qualified individual. For purposes of the reduced maximum exclusion, a qualified individual is any of the following.
You.
Your spouse.
A co-owner of the home.
A person whose main home is the same as yours.
Employment. For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. It also includes the start or continuation of self-employment.
Distance safe harbor. A change in place of employment is considered to be the reason you sold your home if:
The change occurred during the period you owned and used the property as your main home, and
The new place of employment is at least 50 miles farther from your home than the former place of employment was (or, if there was no former place of employment, the distance between your new place of employment and the home sold is at least 50 miles).
Example.
Justin was unemployed and living in a townhouse in Florida that he had owned and used as his main home since 2004. He got a job in North Carolina and sold his townhouse in 2005. Because the distance between Justin's new place of employment and the home he sold is at least 50 miles, the sale satisfies the conditions of the distance safe harbor. Justin's sale of his home is because of a change in place of employment and he is entitled to a reduced maximum exclusion of gain from the sale.
04-03-2006, 04:08 PM
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I spoke with an accountant yesterday. It’s confirmed that if you sell your home that which you lived for less than 2 years you will be paying capital gains tax. There are only 3 exemptions 1) Job relocation 2) Health related 3) Other circumstances (divorce, death of spouse/co signer). I also confirmed that the profit is the one taxable not the price difference between the selling price and the original price.
In my case, I will be paying 15% tax on the profit I will be making. This tax will be paid on the 2006 tax return. It’s a bummer that they have tax laws like this. For an average to below average income families a few thousand dollars is huge.
Thanks guys for all the info.
In my case, I will be paying 15% tax on the profit I will be making. This tax will be paid on the 2006 tax return. It’s a bummer that they have tax laws like this. For an average to below average income families a few thousand dollars is huge.
Thanks guys for all the info.
04-05-2006, 01:44 PM
#15
Originally Posted by cjhurtado2
I spoke with an accountant yesterday. It’s confirmed that if you sell your home that which you lived for less than 2 years you will be paying capital gains tax. There are only 3 exemptions 1) Job relocation 2) Health related 3) Other circumstances (divorce, death of spouse/co signer). I also confirmed that the profit is the one taxable not the price difference between the selling price and the original price.
In my case, I will be paying 15% tax on the profit I will be making. This tax will be paid on the 2006 tax return. It’s a bummer that they have tax laws like this. For an average to below average income families a few thousand dollars is huge.
Thanks guys for all the info.
In my case, I will be paying 15% tax on the profit I will be making. This tax will be paid on the 2006 tax return. It’s a bummer that they have tax laws like this. For an average to below average income families a few thousand dollars is huge.
Thanks guys for all the info.
04-05-2006, 02:25 PM
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Originally Posted by Mike97 3.0P
Why not wait another 6 months?? 
Well I also asked myself that question too and it was a tough decision. The house we’re moving by the end of this month is the perfect house for my family, my wife and kids loved it. Besides the fact that the builder threw in a few upgrades that we wanted at no cost and gave us $5000 credit on closing costs. At this point, I can’t refuse this deal. We offered full price for this house with all the appliances included, upgrades and $5000 closing costs and the builder accepted. Until now I can’t believe it that they accepted. In summary, the upgrades and appliances costs about $14,000 and the tax I am going to pay is about $9,100. It evens out in the end that’s why I decided not to wait.
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