Avoiding tax on home-sale profits

Dear Tax Talk,
I am selling my primary residence that I have owned for 17 months. I
bought it for $295,000 and am selling it for $373,000 minus $22,000 in
real estate commission. I put approximately $16,000 worth of
improvements into the house and have all my receipts. I am rolling
over my profit directly into a $450,000 home. Am I responsible for
capital gains tax here? I thought as long as you were rolling it over
into another property of equal or greater value, you could defer this
tax? Would you clear this up for me? I currently file as a single
taxpayer in the 25 percent tax bracket. Thanks for any info you could
give me.
-- Marie

Dear Marie,
The way things used to work aren't how things work nowadays. Congress
scrapped the old rule that required you to reinvest the proceeds of
the sale of your home in a new, more-expensive property in order to
avoid taxes. The new rules don't turn on whether you reinvest or not.

Instead, the new rules require that you own and live in your home for
a period of two years within the five years preceding its sale. If you
meet the ownership-and-use test, you don't have to buy a new home and
you can exclude up to $250,000 in gain, or $500,000 in the case of a
married couple that files a joint return.

In your case, unless the sale is motivated by special reasons, you
would not be able to exclude from income the $40,000 in gain ($373,000
minus the $22,000 commission minus $16,000 in improvements minus
$295,000 cost). Since you held the property for more than one year,
you would pay long-term capital gains tax of 15 percent or $6,000 in
tax.

If you sell because of special reasons then you would get a partial
exclusion. Special reasons would be:

1. Job-related move
2. Health-related move, or
3. Unforeseen circumstances

The partial exclusion is the $250,000 (or $500,000) maximum exclusion
multiplied by a fraction, the numerator of which is the number of
months you met the ownership-and-use test and the denominator of which
is 24 (the number of months in two years). In your case, if the sale
was motivated by these special reasons, the available partial
exclusion would be sufficient to eliminate your gain.

http://www.bankrate.com/brm/itax/tax...20040819a1.asp

===
"I'd rather be playing video games." -- Me

You have to live at least 2 years to avoid tax.
"Ablang" wrote in message
news
Avoiding tax on home-sale profits

Dear Tax Talk,
I am selling my primary residence that I have owned for 17 months. I
bought it for $295,000 and am selling it for $373,000 minus $22,000 in
real estate commission. I put approximately $16,000 worth of
improvements into the house and have all my receipts. I am rolling
over my profit directly into a $450,000 home. Am I responsible for
capital gains tax here? I thought as long as you were rolling it over
into another property of equal or greater value, you could defer this
tax? Would you clear this up for me? I currently file as a single
taxpayer in the 25 percent tax bracket. Thanks for any info you could
give me.
-- Marie

Dear Marie,
The way things used to work aren't how things work nowadays. Congress
scrapped the old rule that required you to reinvest the proceeds of
the sale of your home in a new, more-expensive property in order to
avoid taxes. The new rules don't turn on whether you reinvest or not.

Instead, the new rules require that you own and live in your home for
a period of two years within the five years preceding its sale. If you
meet the ownership-and-use test, you don't have to buy a new home and
you can exclude up to $250,000 in gain, or $500,000 in the case of a
married couple that files a joint return.

In your case, unless the sale is motivated by special reasons, you
would not be able to exclude from income the $40,000 in gain ($373,000
minus the $22,000 commission minus $16,000 in improvements minus
$295,000 cost). Since you held the property for more than one year,
you would pay long-term capital gains tax of 15 percent or $6,000 in
tax.

If you sell because of special reasons then you would get a partial
exclusion. Special reasons would be:

1. Job-related move
2. Health-related move, or
3. Unforeseen circumstances

The partial exclusion is the $250,000 (or $500,000) maximum exclusion
multiplied by a fraction, the numerator of which is the number of
months you met the ownership-and-use test and the denominator of which
is 24 (the number of months in two years). In your case, if the sale
was motivated by these special reasons, the available partial
exclusion would be sufficient to eliminate your gain.

http://www.bankrate.com/brm/itax/tax...20040819a1.asp

===
"I'd rather be playing video games." -- Me

In article ,
"Jenny" wrote:

You have to live at least 2 years to avoid tax.

That is a generalization. The rule is 2 out of 5
years. There are also a number of exceptions where
the time is pro-rated. It is best to see an accountant
or tax attorney if your situation is iffy.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708
Newave Communications http://www.johnweeks.com
================================================== ====================

Jenny wrote:
You have to live at least 2 years to avoid tax.
"Ablang" wrote in message
news
Avoiding tax on home-sale profits



You do realize that ablang posts things just to blather on and not
because he really cares about the topic, don't you?