must i reinvest this money into a new home or can I pay of my friends mortgage and put my self on his title
2007-04-16 16:06:01 · 10 answers · asked by arubianogirl 1 in Business & Finance ➔ Renting & Real Estate
Ok, simple answer: It depends; consult your tax advisor
Detailed answer:
If you are single, the first $250k of capital gain is a gimme. Capital gain is calculated by adding any capital improvements you did to your purchase price plus your financing cost at purchase or refi plus your selling costs (commission, escrow, title and other fees) to determine your basis.
If you are married filing jointly, subtract $500k + the other costs & expenses from your sales price to get your net gain.
You CANNOT reinvest any additional profit via tax deferred exchange, unless you rented your house and claimed it as a rental on your taxes for 3 out of the last 5 years. If you rented it, then you can exchange the profit over the $250 or $500 exclusion (new in 2006). Rental periods of less than 3 of the last 5 years are prorated.
What motivation you do have for paying off your friend's mortgage? The property will not appreciate any faster with the additional equity. Your money should be working for you - unless of course, you are just looking for peace of mind. You friend would need to add you to the title. You cannot do this yourself.
Contact a tax advisor and a real estate professional in your area. Instead of paying off your friend's mortgage, how about loaning him/her the money and collecting the interest payments? That would provide you with a nice income stream...Try www.circlelending.com for real estate loan documentation between friends and family...
You can email me for more specific information if you desire.
Hopefully this answers your questions and provides you with something to think about in terms of a long term plan for your profits.
2007-04-16 16:48:11 · answer #1 · answered by KConsults 3 · 0⤊ 0⤋
If you are married filing a joint return, and meet the requirements to exclude gain on the sale, then you won't pay cap gains tax. If you're single and meet the requirements, you could exclude $250K of the gain but would still likely owe some tax on the sale.
In either case, you can do whatever you want to with the proceeds - that doesn't change what you do or don't pay tax on. You don't have to buy another house - that rule went out years ago.
2007-04-16 16:33:26 · answer #2 · answered by Judy 7 · 0⤊ 0⤋
It depends on whether you are married or single and how long you lived in the house.
If you lived in the house 2 out of the last five years you are entitled to an exclusion of $250,000 of the profit if you are single and $500,000 if married filing jointly. So $165,000 of the profit is taxable if single and none if MFJ.
Keep in mind that you might have had major improvements and selling expenses (commissions and closing costs) that could increase your cost basis and reduce your taxable gain.
2007-04-16 16:17:21 · answer #3 · answered by Latigo 3 · 0⤊ 0⤋
If the home was yours and you lived in it the last 2 years, you can exclude up to $500k gain on the sale of it. Now, if you used it for business use and claimed depreciation on it or part of it, you'll need to decrease the cost by that depreciation amount. If you put money into it (new paint, repairs, etc.) in order to get it ready to put on the market, add those expenses to the cost in the home.
If it was rental property, you'll have to carry this as a capital gain.
2007-04-16 16:13:28 · answer #4 · answered by Anonymous · 0⤊ 1⤋
Yes to the first question if you're single you can exclude 250 thousand dollars from tax. And 500 thousand if you're married filing a joint return. As long as you owned it and lived in it for two out of the last five years. And the condition of applying the gain to another house doesnt apply anymore.
2007-04-16 16:10:27 · answer #5 · answered by jeff410 7 · 2⤊ 0⤋
If it is your home you do not pay cap gain. I would not pay off your friends mortgage, I would invest in another property in your name solely. Too many complications and easy to go wrong. If you are going to be living with him I would buy 2 properties and pay him rent, keeping receipts then if he wants you to go in with him I would buy 1 property to invest with him. safeguard yourself and your money.
2007-04-16 16:19:03 · answer #6 · answered by bernadette e 1 · 0⤊ 0⤋
I BELIEVE that you do not have to pay capital gains. I believe you have a lifetime exclusion of up to 250,000. for a single person. (At least that is how it was a few years ago when I sold my house)
You can check it out at irs.gov
2007-04-16 16:09:04 · answer #7 · answered by Anonymous · 0⤊ 1⤋
have to buy a MORE expensive house (over 530000) to NOt have capital gains.
2007-04-16 16:09:11 · answer #8 · answered by Anonymous · 1⤊ 0⤋
If you have that much money, get a tax advisor.
2007-04-16 16:09:25 · answer #9 · answered by Anonymous · 1⤊ 0⤋
it is a capital gain.
2007-04-16 16:09:08 · answer #10 · answered by (♥_♥) 6 · 1⤊ 0⤋