jimcol711

i have been hearing mixed information on this topic.....capital gains tax on the sale of a home.

i bought my first home in august of 2003 and am considering selling it as soon as this spring...i will easily make a decent profit on the deal.

i have been hearing that if i sell after less than 2 years of ownership, you have to pay tax on the profit you make on the sale....i do not want to pay tax whatsoever on any profit i make

i have also heard that this is only true if you profit more than like 100,000 dollars which i definately will not do.

so what is it, does anyone have a clear understanding of the taxation of home sale profits???

Scrib

It needs to be your primary residence.

You have to keep have it as your primary residence for 2-years or longer.

Single - $250,000 with no capital gain penalty. Married - $500,000 with no capital gain penalty.



Since you haven't been there two years, you will be responsible to pay capital gains on the money that you'd get back at time of sale.


Edit:

Here's what the IRS has to say.

http://www.irs.gov/faqs/faq10-1.html

I sold my principal residence this year. What form do I need to file?

If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). This means that during the 5-year period ending on the date of the sale, you must have:
# Owned the home for at least 2 years (the ownership test), and
# Lived in the home as your main home for at least 2 years (the use test).
If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. The maximum amount you can exclude will be reduced. If you are required or choose to report a gain, it is reported on Form 1040, Schedule D (PDF), Capital Gains and Losses .

If you were on qualified extended duty in the U.S. Armed Services or the Foreign Service you may suspend the five-year test period for up to 10 years. You are on qualified extended duty when:
# At a duty station that is at least 50 miles from the residence sold, or
# When residing under orders in government housing, for more than 90 days or for an indefinite period.

This change applies to home sales after May 6, 1997. You may use this provision for only one property at a time and one sale every two years.

For additional information on selling your home, refer to Publication 523, Selling Your Home .

References:

* Publication 523, Selling Your Home
* Tax Topic 701, Sale of your Home - after May 6, 1997
* Tax Topic 703, Basis of Assets

jimcol711

"If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. The maximum amount you can exclude will be reduced."

so what does that mean??? and what are "some cases"??

Scrib

It's all here.

http://www.irs.gov/publications/p523/ar02.html#d0e1901

I do not think you'd be able to get around this however...

Reduced Maximum Exclusion

You can claim an exclusion, but the maximum amount of gain you can exclude will be reduced if either of the following is true.

1. You did not meet the ownership and use tests, but the reason you sold the home was:

A change in place of employment,
Health, or
Unforeseen circumstances (as defined later).

2. Your exclusion would have been disallowed because of the rule described in More Than One Home Sold During 2-Year Period, later, except that the reason you sold the home was:

A change in place of employment,
Health, or
Unforeseen circumstances (as defined later).

jimcol711

so what if i was to move back to new york? that would make me eligible to be excluded from the tax on the profit, right?

Scrib

I haven't read the reg in detail, but from what I posted above, that seems to be the case.

Now whether you get complete exclusion or if it's partial, I don't know.

jimcol711

what a PITA this all is...oh well, maybe ill just go ahead and wait till august to sell, that way ill have been there a full 2 years...

Scrib

For me, I guess it would depend on how much money we're talking.

Interest rates are going up, so waiting to sell and get into another home may hinder you with a higher rate; increase your monthly payment.

On the flip side, paying capital gains a home sale could royally suck. It all depends on what you'd actually get for the sale.

It'd be after closing costs, realtor fees, etc.

Let's say you clear $50,000. 20% for long term gains... That's $10,000.

But if you wait 9 months and sell in August and buy something else, rates will more than likely be higher. Hell, moving 1/8 of a point, depending on loan size could be $10,000 easy.

Pros vs. cons.

jimcol711

good points....

i am expecting to have no problem making between 30-35k on this house and i simply want to just get a bigger house with a garage at least so i am looking at a payment increase regardless. then there is this possiblity that i may just pack up, sell, and move back to new york....seems a few opportunities have begun to present themselves out there for me....but its a tough call, ive got some time to think, so for now i will just sit here and research