Hoping a fellow ClutchFan out there has had to deal with this, thanks in advance for your thoughts. My understanding (generalizing here) - when you sell a home, if you've lived in it the last 2 of 5 years, you dont have to pay capital gains. There may be exceptions to this rule, one being that if you had to move for a job, you may not be required to pay all of the capital gains. My situation: Home had doubled in value since I purchased it. Bought in 04/11 and lived until transferred in 09/14. Moved back into the home 01/16, then moved away again for work 03/17. I've rented out the house while away for work. I plan to sell it in 03/19. I will not have lived in the house for 2 of the last 5 years. Has anyone had a similar situation? Am I eligible for an exemption as I've had to move away for work - if so, how much? I understand there's something called a 1031 exchange where I can use the equity to buy a new home without having to pay capital gains, however I'd rather not be committed to buying a new place. Appreciate the guidance!
You will qualify for a reduced exclusion on the sale of the home instead of the $250,000 exclusion on gain if single or $500,000 exclusion if filing married. Here is the link to a worksheet that can help you calculate what amount of exclusion you would qualify for. http://www.thetaxbook.com/updates/TheTaxBook/Client Tax Tools/Reduced_Exclusion.pdf Here is some support to justify the reduced exclusion: https://www.law.cornell.edu/cfr/text/26/1.121-3
Not a tax expert or tax attorney, but... I'm pretty sure you have to still pay capital gains, but holding property longer than a year will qualify the property as a long-term asset, which receives more favorable tax breaks. I do know about 1031 exchanges -- yes, you can opt to do a 1031 exchange when you sell your house. The sale proceeds will be transfered to a third-party escrow that will hold them until you're ready to purchase your next property, at which point they'll send the proceeds to fund the new purchase.
Great, thank you! I did the work sheet and it seems I'm about to quality up to around 85% of the $500k, which is plenty. I'll be hiring an accountant when the time comes, but this is good news. thanks you.
Interesting... I was under the impression (1031) that you had to purchase a new home within 60 days. I guess that's not the case if you use an escrow? Do you happen to know if you can purchase mutiple homes - ie if I have 300k in equity, can i buy 2 places and put down 150k on each?
Completely random... but it sounds like the OP is single. Sounds like he qualifies for 85% of the $250,000 anyway (which means I'm sure I can back into the math, but whatever). For ***** and giggles, let's assume the house was bought and appreciated enough so that he'd get the $250k deduction in full. But if he was married and filing he'd get the $500k deduction in full. Could OP get married, file jointly, get divorced in that scenario?
In order to meet the $500k exclusion, only one spouse must meet the ownership test but both spouses must meet the use and frequency test which means both would need to live in the home 2 of the last 5 years.
I think it might be six months rather than sixty days? But don't quote me on that -- I deal with mostly commercial 1031s. Doing a 1031 means you will use an escrow -- you are not allowed to take possession of the funds. Yes, you are allowed to purchase multiple properties that the sale proceeds can be divided among. IE, you make $500K off the sale, you can buy five properties for $100K each, but still need to close in the time frame allotted to you. Benefit of a 1031 is the sale proceeds are not taxed.
I have no idea. My suggestion is to say nothing about it and dare the IRS to audit you. Their budget keeps getting cut so the chance they'll actually catch you is low.
