We are considering selling our house that we have owned for less than 2 years, so we don't automatically qualify for the capital gains exemption. If we roll the gains from the sale of our house into the purchase of another house, do we still have to pay capital gains tax? Specifically, if our net gain is $50k and we applied that to the down payment of our next property, do we still pay capital gains tax? If not, is there any other way to avoid capital gains tax?
2006-09-19 17:29:39 · 10 answers · asked by rqklamser 2 in Business & Finance ➔ Renting & Real Estate
Are you sure about the $500k exemption? We have lived there for less than 2 years so it is my understanding that the exemption doesn't apply. I want to believe the first answer, but I can't find anything online that says that I can roll it into our next house to avoid the tax. Instead, everything that I read says that that portion of the law has been repealed.
2006-09-19 17:49:48 · update #1
The new ruling gives exemptions to the capital gains tax for reasons such as health issues, unforseen circumstances, change in employment, etc. If you have what the IRS would consider a good reason to sell your home before you meet the two year mark, you may avoid the capital gain.
After reading your additional information:
There is no longer any roll-over of gains. But there are all the exclusions of gains if you have lived there less than the two years and qualify under one of the IRS defined "unforseen circumstances".
2006-09-19 18:00:48 · answer #1 · answered by T H 4 · 1⤊ 1⤋
Section 121 is the capital gains tax exemption of up to $500,000 for married couples. There are some provisions for prorated exemptions for involuntary transfers. Talk to an Enrolled Agent or CPA for details.
Section 1031 is for deferring capital gains from *INVESTMENT* property only, not personal residences. IRS has issued guidelines that call for a minimum holding period of five years if you acquired it for one purpose and are now using it for the other. Not going to work in your case.
If you're just flipping houses you happen to live in, the answer is basically no.
2006-09-20 03:49:30 · answer #2 · answered by Searchlight Crusade 5 · 0⤊ 0⤋
First understand this, you are not avoiding the tax, but simply deferring the tax to a later date.
I did this and yes, you can avoid paying capital gains on this sale provided it is your principal residence, not a vacation or 2nd home, and the new property is equal to or greater than the value of the house you sell. So, yes, you can roll over the capital gains into the next house. But a caveat here. The capital gains carry over into your new house and the penalty for forgetting this IS severe! If I understand the laws on capital gains, it works like this: your first house had a base value and gained and then you sell and buy which also gains and then you sell. The basis on which the total gains is determined is the basis of the first house to the selling price of the last house, which means the capital gains are cumulative from house to house. If I remember correctly, a single person such as I am can do a one time write off up to a total of $250K before taxes kick in. Not a problem for me, as I gained $40K on my 1st house and I might gain an additional $100K on my 2nd house (this house I am living in now) and my cumulative total capital gains are $140K over the 2 houses. Married gets twice the write off of a single person. So, it probably won't be a problem for paying capital gains tax. Just don't claim the exemption until the last house...
If I am wrong when I go to downsize for retirement and might have to pay capital gains tax, I only have myself and my tax advisor to blame...
Remember, the exemption for up to $250K/singleton is a one time thing...
I sure hope I am right... But, only a tax advisor can tell you for sure in your case.
[edited] - You may be liable for state tax on the capital gains. My 1st house was in CA,. I moved to WA and bought a 2nd house. A couple of years later I sold the house in CA and even though I did not have to pay federal tax on the capital gains (rolled into the new house even though bought before the sale of the 1st house), I found out the hard way CA taxed the gains! I had a HUGE penalty to pay because I did not declare the gains from the sale. So, be SURE to look into the local state tax laws on capital gains!
2006-09-19 17:57:30 · answer #3 · answered by rowlfe 7 · 0⤊ 1⤋
T H is correct. The other responders are either talking about the old rules, or missed the fact that you've lived in the house less than 2 years.
Look at irs.gov, publication 523.
2006-09-19 18:39:29 · answer #4 · answered by Judy 7 · 0⤊ 1⤋
Forget about rolling anything. There is an exemption from tax for married couples of the first $500,000 of profit when selling their principle residence. So, do not worry, just give me 10 points!!
2006-09-19 17:44:08 · answer #5 · answered by Brucie Boy 3 · 0⤊ 3⤋
considering you would be advertising your apartment for under the acquisition value, the incontrovertible fact that it replaced into used as a crucial place of abode is irrelevant. the respond on your question relies upon on the "foundation" of your sources. the muse relies upon on the acquisition value of the apartment, the honest marketplace fee of the apartment whilst it replaced into switched over to a condo, any advancements earlier or after it replaced into switched over to a condo sources, and how long it extremely is been a condo sources. it extremely isn't any longer achieveable to tell you without this suggestions. occasion based on your suggestions: Say the FMV of the apartment once you began renting it replaced into $a hundred and forty,000 and you sell it for $a hundred thirty,000. you are able to have taken approximately $5,000 depreciation, so your foundation is $one hundred thirty five,000. you have a loss of $5,000. it extremely is asserted on kind 4797. in the journey that your unique foundation is closer to the sales value, you would be able to ok have a earnings as reported in different solutions. with the intention to be attentive to what your tax implications are, look for advice from with a tax person earlier the sale.
2016-10-17 07:43:47 · answer #6 · answered by ? 4 · 0⤊ 0⤋
Yes. As long as you reinvest the money in another eligible property of equal or greater value, you do not have to pay the tax.
2006-09-19 17:31:41 · answer #7 · answered by all1g8r 4 · 0⤊ 1⤋
that's an interesting question I hope you get some reasonable answers
2016-08-23 07:10:49 · answer #8 · answered by mariana 4 · 0⤊ 0⤋
Need more details
2016-08-08 15:24:23 · answer #9 · answered by Anonymous · 0⤊ 0⤋
And the same question comes up again
2016-09-18 23:50:57 · answer #10 · answered by Anonymous · 0⤊ 0⤋