I sold my CA primary residence in 2006. Tax question.?

Question

I moved from CA to GA in 2005 and bought my new home in GA in 2005. My CA property didnt sell until June of 2006. I incurred no income in CA but I did pay more than $3k in property taxes and $4m in transfer taxes. My questions are... 1) Since I don't have CA income do I need to file a tax return b/c I sold the property in the state. I applied my homestead exemption so I owe no gains. 2) Can I write off the transfer tax on a state or fed. level? 3) I had two mortgages and had to cash out my 401k to pay for the CA property (I relocated for work). Is there anyway to write off my loss that I incurred from paying to mortgages? 4) Any help in helping me reduce the 10% penalty plus taxes on the $15k I pulled out of my 401k? THANK YOU FOR YOUR HELP!

Alli

Answer 1

1. I wouldn't think so as you had no taxable income in CA for 2006 but check with the FTB to be sure.

2. No. State: No return due. Federal: Not a deductible tax though you can use it to reduce the gain on the sale.

3. No, that's not deductible. Loss on sale of a personal residence is never deductible nor is the payoff on any mortgage.

4. The only way to avoid that penalty is to roll over the early distribution into another qualified retirement plan and since you used it for other purposes that's no longer an option.

Answer 2

Unfortunatly you are in one of those situations that don't fair so well when it comes to taxes. You will get to write off all the mortgage interst paid on all mortgages and all the property taxes paid for both homes. You will not need to file CA. Transfer taxes fall into basis adjusting expenses and are not deductable. On the plus side of things, you didn't mention any trips back to CA to deal with the house there, but any trips for that purpose would be deductable.

Answer 3

Yes you do need to file CA income tax.
Yes you can write off the transfer tax.
You will have to pay tax on 401K but may not have to pay penalty. Use tax software (TaxCut or Turbotax) to figure this out.
You may not be lucky for avoiding penalty.
You are better off using the software to figure everything. Buy the deluxe version.