I am military. I sold my house last January after living in it only 10 months.?

Question

I sold the home for $10000 more than I paid for it, but after all fees I walked away from closing with about $1100 in my pocket. I have read the rules on the IRS website, but do not understand them. I had to sell the house due to a change in my duty station. Will I have to pay taxes on this? If so, is it prorated? Please only respond if you can leave a legit reference. Thanks you for you replies.

I also only owned it for 10 months.

Answer 1

There are special rules for military but you may not even need them.

If you have to sell because of a job relocation, you receive a prorated amount of the exclusion ($250,000 if single, $500,000 if married).

You would receive 10/24s of the above exclusion.

10 / 24 x $250,000 = $104,167.

So, in you situation, the first $104,167 in gain would be tax free. Double that if your married.

You shouldn't have anything to worry about.

Answer 2

This is a bit complicated, you need tha advice of a tax attorney, not a tax preparer like an H&R Block type. You may think the expense is too great, but it is nothing compared to an incorrectly filed return.

Answer 3

Taxpayers may exclude gain on a home sale, provided they have owned and used the home as a principal residence for two of the five years before the sale. A reduced maximum exclusion may apply to those who satisfy part of the two-year rule. Military personnel often retain ownership of a home while away on duty but eventually sell it without returning to live in it, perhaps failing the use test completely.

The new law allows persons on qualified extended duty in the U.S. Armed Services or the Foreign Service to suspend this five-year test period for up to 10 years of such duty time. A taxpayer is 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. A taxpayer may use this provision for only one property at a time and may exclude gain on only one home sale in any two-year period. Although an amended return must usually be filed within three years of the original return’s due date, the law gives qualifying taxpayers who sold a home before 2001 until Nov. 10, 2004, to file an amended return claiming the exclusion.

This example may help: Sgt. Brown owned and lived in a Virginia townhouse for 10 months before being deployed overseas in February 1991. She returned in 1995 and lived in the townhouse for 16 months before she was assigned to a Texas duty station in late August 1996. She married and when the couple returned to Virginia in July 1999, they bought a nearby house. In July 2001, they sold the townhouse. Having lived in the townhouse only one month in the five years preceding its sale, they reported the capital gain on their 2001 return. Under the new law, they may disregard the time spent overseas and in Texas when determining the 5-year test period, which would then consist of the two years from July 1999 to July 2001, when they lived nearby, the 16 months she lived in the townhouse in 1995-96, and the 20 months before the February 1991 overseas deployment. During this test period, Sgt. Brown owned and lived in the townhouse for 26 months, so she may exclude up to $250,000 of gain on its sale. Because her husband never lived in the townhouse, he does not qualify for any exclusion. The Browns have until Apr. 15, 2005, to file an amended return claiming a refund of the capital gain tax paid on the excludable amount.

Answer 4

If the sale is due to a job change (and a change in duty station would qualify) then the amount excluded is pro-rated, so you should be OK.

Answer 5

I think this year you should have your taxes done at H&R Block. It would be safest, I think!

Chances are, you paid more in interest on the home than you made by selling it, so you should be ok after you deduct the interest.

Answer 6

You should've done a 1031 Exchange.