My fiance and I both own our houses. When we get married, we intend to sell both houses and buy a new one to move in together. Of course, there's a good chance that the timing won't work out between buying and selling houses. I want to avoid any capital gain issues (or any other tax issues, for that matter). What do I need to watch for? If my house sells early, how long can I "sit" on the proceeds of the sale before I have to invest it in a new house? What other "gotchas" do I need to be aware of?
2007-11-09 06:01:04 · 6 answers · asked by joedeshon 3 in Business & Finance ➔ Taxes ➔ United States
I assume each of you have owned and lived in your own house for two years as of now.
Now, assume you are married and then decide to sell your house. If you and your spouse do not both live in the house for two years, then your exclusion is $250,000 of the gain on the sale of your house. If you are going to have a bigger capital gain than that, and want to escape capital gains taxes, then you and your spouse together will need to live in that house for two years. While only one spouse needs to satisfy the ownership test, both must satisfy the use test for the exclusion. If both of you live in your house for two years, your exclusion is $500,000 of capital gains.
So, if the sale of neither house is going to result in capital gains of more than $250,000, just sell those houses and take the money tax free. You do not have to re-invest that money in another house in order to get the gain tax free.
If one or both houses is going to have a gain of more than $250,000, then you may want to jointly occupy one of the houses for two years and be able to exclude $500,000 of gain, and exclude $250,000 gain on the other.
It is not possible to exclude $500,000 gain on both houses, unless you live in one of them together for two years, sell it, and then live in the other one together for two years, and then sell it.
2007-11-09 06:49:39 · answer #1 · answered by ninasgramma 7 · 1⤊ 0⤋
The people who say there is no longer a reinvestment requirement, and there is a large exclusion from paying capital gains tax, are correct.
The one major gotcha I see that you're looking at is that you can only exclude the gain from the sale of one home during a 2-year period. So to exclude both, you'd either have to sell them before you get married, or just sell one at first, then live in the other together for 2 years then sell that one.
If only one of the homes gives a capital gain, this wouldn't matter, you could exclude the gain on that one.
2007-11-09 15:02:05 · answer #2 · answered by Judy 7 · 1⤊ 0⤋
The rules changed about 10 years ago on the selling a principal residences.
As of 1998, if you (as a single person) live in and own a home for 2 of the 5 years before you sell, the first $250,000 in profit is tax free!! This exclusion would apply to both of you.
If you are in a house for over one year but under two years, the profit is taxed at 15% unless there is an "unexpected circumstance" (getting marred is not an unexpected circumstance). If you are in a house under 1 year, the profit is taxed at your regular tax rate unless you have an unexpected circumstance.
So.....have you each lived in and owned your respective houses for over 2 years? If so.....up to $500k in profit will be tax free.
2007-11-09 06:09:53 · answer #3 · answered by Wayne Z 7 · 1⤊ 0⤋
Brians information is years out of date. There is no longer a replacement requirement of any type. The only rule is the one stated by the first answerer-You must have lived in the houses 2 out of the previous 5 years (some exceptions apply to this rule) and then the first $250,000 profit from the sales is tax free for each of you.
2007-11-09 06:17:20 · answer #4 · answered by Anonymous · 1⤊ 0⤋
Unless you make a gain of $250,000 for individual or $500,000 joint and you lived two of the last five years in the home there are no capital gains taxes.(military and foreign service personnel have a special election) The law changed a few years back.(2004) There is no re-invest rules now so you don't have to sit on the proceeds. Now if you use your home for business purposes it might be a different story. Go to irs.gov and pose the question if you did use it for business use.
2007-11-09 06:15:07 · answer #5 · answered by justakid 2 · 2⤊ 0⤋
You can sit on the proceeds for 2 years - that is the replacement period you have to "Replace the old house".
As for capital gains issues, this will depend on what you bought/sold the current houses for, and what you are paying for the new house. Let's say the total of both your houses sells for less than the cost of the new house, there would be no gain.
Without knowing specific figures, hard to give you absolute advice. Call the IRS and pick their brains on this one.
2007-11-09 06:11:10 · answer #6 · answered by Brian K 2 · 0⤊ 5⤋