Can anyone help with a tax return question about the sale of my main home (in California)?

Question

I had to sell my (main) home in 2006 because I was almost out of money. I was almost out of money because I was laid off in 2005 and was almost at the end of my funds. (I have not worked since then because I am currently in graduate school so I presently have no income other than school loans.) I did, however, have a 401k and still do. Do I qualify for an exception to home sales tax? (This is all in California btw)

I closing date for the purchase of the home was October 8, 2004 and the closing date of the sale was May 15, 2006. I lived in the home approximately 18 months. The only reason I sold was that I was running out of money (and would have been unable to pay the mortgage for more than one or two more months).

Answer 1

If you're talking about capital gains tax on any profits made on the sale of your home, the answer is that you're in the clear up to $250,000 profit (or $500,000 for a married couple).
Here's the rule:
Internal Revenue Code Section 121 deals with the sale of principal residences. It can be summarized as follows: a taxpayer can sell a principal residence without ANY tax liability if a) the taxpayer has maintained the property as his principal residence for two out of the last five years, b) the taxpayer has not claimed tax exemption under this rule within the last two years, and c) the gain excluded does not exceed $250,000 for a single individual, $500,000 for a married couple.

Answer 2

If you owned your home for at least two of the five years immediately before the sale, and lived in it as your main residence for two of those same five years, you'd qualify for the full exclusion of $250K, or $500K on a joint return. If you didn't own/live in it that long, the circumstances you describe would probably qualify as unforseen circumstances, which would qualify you for a pro-rated exclusion based on the time you DID own it and live in at as your main home.

This is for federal. I don't know what the rules are for CA state taxes.

Answer 3

You do not have to pay any tax if you lived in the house for 2 years out of the last 5.

Answer 4

Be safe, go see an accountant. You need to report this carefully. An accountant can help you do this so you don't overpay or underpay. Also, the accountant can help you take advantage of any write-off for your education loans.

You are entering into some complexities that need professional advise. Be safe.

Answer 5

Yes you will still be liable for sales tax.