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Posted by Bob Sandler on May 9, 2007, 4:13 pm
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> My sister has lived in her house for 3 years, BUT the first
> 2 years my husband and I legally owned the home. She bought
> it one year ago and now wants to sell it. She has no
> extraoridinary reasons for wanting to sell it other than she
> can make some money on it due to rapid appreciation in our
> area.
>
> The real estate told her she doesn't have to live in a home for 2
> years to get cap gain treatment on any profit she makes on her house.
>
> What is the story? THanks.
The story is that the real estate agent is right, but is
answering a different question than the one your sister
really wants to ask. There are two different issues here:
(1) capital gain tax rates, and (2) exclusion of gain.
(1) As long as your sister has OWNED the house for more than
ONE year, any profit she makes on the house will be taxed at
long-term capital gain rates. That's what the real estate
agent is talking about. To get the long-term capital gain
rates, it doesn't matter how long she has LIVED in the
house. She doesn't even have to have lived in it at all.
(2) But if she waits another year, she will be able to
EXCLUDE up to $250,000 of the profit from taxation (assuming
she is single). In other words, she will not have to pay any
tax at all on the first $250,000 of profit. If her profit is
higher than that, she will pay tax at long-term capital gain
rates on the amount of profit over $250,000. This exclusion
is what you are thinking of, with the two-year requirement.
To get the exclusion she has to have both LIVED in the house
for at least two of the five years preceding the sale, and
also OWNED the house for at least two of the five years
preceding the sale. She has already lived there for more
than two years, but she needs another year of ownership to
qualify for the exclusion. As you seem to be aware, if
someone has owned and lived in a home for less than two
years, it is possible to qualify for a partial exclusion if
they sell the home for certain reasons. But wanting to take
the profit is not one of those reasons. So if she sells now,
she will get the long-term capital gain rates, but she will
have to pay tax on the entire profit.
Bob Sandler
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Posted by Bill Brown on May 9, 2007, 4:13 pm
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> My sister has lived in her house for 3 years, BUT the first
> 2 years my husband and I legally owned the home. She bought
> it one year ago and now wants to sell it. She has no
> extraoridinary reasons for wanting to sell it other than she
> can make some money on it due to rapid appreciation in our
> area.
>
> The real estate told her she doesn't have to live in a home for 2
> years to get cap gain treatment on any profit she makes on her house.
>
> What is the story? THanks.
Well, technically, the information attributed to the real
estate agent is accurate. However, to get the preferential
tax rate that goes with long term capital gains, your sister
has to have owned the home for MORE than a year.
Also, from your facts, your sister does NOT qualify to
exclude any of the gain under IRC Section 121.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by rick++ on May 11, 2007, 6:08 pm
Please log in for more thread options > It will likely be worthwhile for your sister to remain in
> the home for the full 2 year period. Having done that, she
> could qualify for an exclusion of up to $250,000 in gains
It is better to look at total return than to obsess about
taxes. If the owners thinks the proerty will decline in
value more than the gain exclusion, then its worthwhile to
sell now. You might add the cost of holding it another
year into the equation too.
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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