How much capital gains taxes will I owe under these special circumstances?

Question

I need help. I've done tons of research but neet to know if anyone can point to to a definite answer. I spent 17 months building a house only to find out 2 weeks before closing on it that my husband was being let go from his job. He works in a highly specialized feild and we had to move to another state to find work for him. Needless to say we sold put the house up for asle the same day we closed on it. We bought it for 398k and since it too 17 mos to build sold it for 560k. We owned the home for 3 months before we sold it. My question is are we eligible for any kind of tax break on the capital gains because of the unforeseeable circumstances (moving for a job)? The irs mentions this, but doesnt go into detail. I need to know so i can plan in advance or find out if i am going to be stuck with a huge tax bill. My profits went into our new house in the new state, so I need to start planning now.

I lived in the house with our kids for 3 months until the sale went through while my husband went to work in another state, then we joined him. Also the IRS says there are special exceptions for the unforeseeable circumstance of having to move for a job but doesn't tell me what they are so i can figure what my taxes are going to be. Thanks for the answers so far!

Answer 1

This is a large enought sum of money you want want to consult a tax attorney or a certified account as to the best options for your tax situation.

You should definenenlty read publication 523 from the IRS as it deals with sale of residencts.

Here are some tips from the irs website.

According to the IRS:

Sale of Residence

You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time.


Topic 701 - Sale of Your Home

If you have a gain from the sale or exchange of your main home, you may be able to exclude from income all or part of the gain, please refer to Publication 523 for more information on the gain exclusion. The exclusion may be allowed each time you sell or exchange your main home, but generally no more frequently than once every two years. You cannot deduct a loss from the sale of your main home.

If you sold your home under a contract that provides for part or all of the selling price to be paid in a later year, you made an "installment sale." Refer to Topic 705 for more information.

To be eligible for an exclusion, your home must have been owned by you and used as your main home for a period of at least two years out of the five years prior to its sale or exchange. The required two years of ownership and use during the five–year period ending on the date of sale do not have to be continuous. You can meet the ownership and the use tests during different two year periods. However, both tests must be met during the five–year period ending on the date of the sale or exchange.

If you did not meet the ownership and use tests, or if during the two–year period ending on the date of the sale or exchange you sold or exchanged another home at a gain and excluded all or part of that gain, you may be allowed to exclude the gain realized on the sale or exchange of your home if:

* You sold or exchanged your home due to a change in place of employment or health or unforeseen circumstances.

Report the sale or exchange only if you have a gain that is not excluded from your income. If you have a gain that is not excluded you must report it on Form 1040, Schedule D (PDF).

For additional information, refer to Publication 523, Selling Your Home.

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, for more than 90 days or for an infinite period, you are:

* At a duty station that is at least 50 miles from the residence sold, or
* Residing under orders in government housing


To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

* Owned the home for at least two years (the ownership test)
* Lived in the home as your main home for at least two years (the use test)

Gain

If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

* If you can exclude all of the gain, you do not need to report the sale on your tax return
* If you have gain that cannot be excluded, it is taxable. Report it on Schedule D (Form 1040)

Answer 2

The situation is complicated, but the answer is fairly simple. Was the house your primary residence? (did you actually live in it or on the property or were you living somewhere else). If so, for how long?

As long as it was your primary residence and you moved more than 50 miles away from your husbands old job, you can exclude part of the capital gain. Take the number of months you claimed it as your primary residence and divide by 24, then multiply that by $500k. This is the amount of your $162k gain that you can exclude. The rest will be taxable.

Regardless of whether you have to pay taxes, that was a good investment.

Answer 3

If you lived in your home less than 24 months, you may be able to exclude a portion of the gain. Exceptions are allowed if you sold your house because the location of your job changed, because of health concerns, or for some other unforeseen circumstance.

If you are selling your house because of unforeseen circumstances, be ready to document what those reasons are. IRS Publication 523 defines an unforeseen circumstance as "the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home." The IRS has given specific examples of unforeseen circumstances:

* natural disasters,
* acts of war,
* acts of terrorism,
* change in employment or unemployment that left you unable to meet basic living expenses,<----------------
* death,
* divorce,
* separation, or
* multiple births from the same pregnancy.

If you meet one of those criteria, you calculate your partial exclusion based on the amount of time you actually lived in your home.

Count the number of months you actually lived in your home. Then divide that number by 24. Then multiply this ratio by $250,000 (if unmarried) or by $500,000 (if married). The result is the amount of gain you can exclude from your taxable income.

Make sure to keep all documentation regarding your unforseen circumstance.

Answer 4

No, capital gains tax due on a sale of your residence have nothing to do with what you do with the money- that rule went out many years ago. If you had lived there for two years and owned it, you might have been able to eliminate the cg tax on the sale. But too late now for that, you're stuck with paying the tax.

Answer 5

Your gain is $162,000. Since you didn't live in it for 2 years you can't exclude the entire gain, but since the sale was due to an unexpected job change, you can exclude a portion of it. If you had lived there 2 years, you could exclude $500,000 assuming you're married filing a joint return. Since you only lived there 1/8 of the required time, you can exclude up to a maximum of $62,500 of the gain (1/8 * $500,000).

Answer 6

The enrolled agent has the best answer so far. That includes mine. One thing I would add. Ask your tax adviser if this case is a candidate for a Private Letter Ruling. That means you ask the IRS in advance to issue a written statement about how the case should be handled. If such a ruling is issued, they can't challenge you for following it.

Answer 7

It sounds like such a special individual circumstance, you will likely need a tax professional to look at your specific case.

I believe it also matters whether your profits went into the purchase of a new property or not.

Answer 8

Consult a tax professional.

If you're married then you are allowed up to $500k exemption in capital gains from selling your principle residence.

But there are some interesting things to consider regarding how long you lived in the house etc. Technically you didn't live in the house but it was your principle residence.

Answer 9

I would contact an accountant if I were you, but my take on is that you can deduct all of your expenses including all the interest you paid and real estate fees from the gains, but the rest you have to take either as income or short term capital gains.

Answer 10

About 35 per cent