Profit from selling house rule?

[C.Ann]

Do they still have that once-in-a-lifetime exclusion where you can sell a home once and not have to claim the profits? And if so, is there still an age restriction on it? (I believe it used to be 55..)

 

[AirForceRocks]

I don't think there is an age restriction, and I don't think it is a one-time thing anymore. I believe that a couple doesn't have to pay profits on the first $500,000 of profit from a home sale, assuming that they have lived in the home for an aggregate of 2 out of the last 5 years.

 

[Robinrs]

Are you talking about Capital Gains? The IRS website has all the info you need.

 

[Toby'sFriend]

yes, what AFR said.

The tax laws changed in 1997.

 

[Shannon G]

Like AirForceRocks said...an individual is allowed to exclude up to $250,000 of gain on the sale of a home if it has been owned by the individual and used as the individual's principal residence for at least two out of the previous five years. For married couples filing jointly, the exclusion allowed is $500,000. This is under Internal Revenue Code Section 121.

 

[Desnik]

Yep, that's right. That's why we got stuck paying the government so much! We sold 2 houses in a year and a half at a profit of $150,000. I still don't know how much it's all really costing me! We just sold one about 2 months ago. I hope it isn't too bad.

 

[C.Ann]

I love it here! You can get answers to virtually anything.. LOL

I was pretty sure the rule had changed and would be in my favor. I've never sold a house before and considering I've lived in this house basically all my life (except for 2 years back in the 60's), I guess I'm safe!

 

[jel0511]

Originally posted by Desnik
Yep, that's right. That's why we got stuck paying the government so much! We sold 2 houses in a year and a half at a profit of $150,000. I still don't know how much it's all really costing me! We just sold one about 2 months ago. I hope it isn't too bad.

I'd consult a tax attorney or a CPA. I believe that if you've used the profit on the sale of a home to purchase a more expensive home (Ie you didn't pocket any of the profit and used ALL OF IT as a dowypayment) you do not have to pay taxes on that gain. I could be wrong, and haven't practiced in 6 years (right after the 1997 change) but it is a possibility. A quick consultation with a tax professional could be worth it.

 

[mus muris asinus]

Originally posted by jel0511
I'd consult a tax attorney or a CPA. I believe that if you've used the profit on the sale of a home to purchase a more expensive home (Ie you didn't pocket any of the profit and used ALL OF IT as a dowypayment) you do not have to pay taxes on that gain. I could be wrong, and haven't practiced in 6 years (right after the 1997 change) but it is a possibility. A quick consultation with a tax professional could be worth it.

That's not how it works anymore. It used to be the law, but I think it disappeared with the '97 change.

From irs.gov:

More Than One Home Sold During 2-Year Period

You cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude the gain, you must include it in your income.

Exception. You can still claim an exclusion, but the maximum amount of gain you can exclude will be reduced, if the primary reason you sold the home was:
A change in place of employment,

Health, or

Unforeseen circumstances (as defined earlier).

 

[ToyStory Fan]

Originally posted by mus muris asinus
That's not how it works anymore. It used to be the law, but I think it disappeared with the '97 change.

From irs.gov: --------------------------------------------------------------------------------
More Than One Home Sold During 2-Year Period

You cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude the gain, you must include it in your income.

Exception. You can still claim an exclusion, but the maximum amount of gain you can exclude will be reduced, if the primary reason you sold the home was:
A change in place of employment,

Health, or

Unforeseen circumstances (as defined earlier).

I think the rule you quoted is if you sold 2 homes during the period. But I do also think that the rule changed to the $250K single/$500k joint, every 2 years.

 

[nativetxn]

I learn something everyday, here. This good info to have, now I just need to convince dh to sell this house and move me to AZ

 

[jel0511]

Originally posted by mus muris asinus
That's not how it works anymore. It used to be the law, but I think it disappeared with the '97 change.

From irs.gov:

Thanks for the clarification, as I said I haven't truly practiced in 6 years and haven't stayed up to date on all tax laws.

 

[Desnik]

Thanks for that jel0511
On the first house we sold we invested the whole profit in another house. On the second house, the one we just bought in Dec. we invested all but $20,000 of the profit. So if your right I will only have to pay taxes on the $20,000. I hope! I am definitly going to have someone do our taxes this year and consult with a tax attorney. DH usually does them but with all the closing costs we paid and such I don't want to mess with it!

 

[kadaten]

Originally posted by Desnik
Thanks for that jel0511
On the first house we sold we invested the whole profit in another house. On the second house, the one we just bought in Dec. we invested all but $20,000 of the profit. So if your right I will only have to pay taxes on the $20,000. I hope! I am definitly going to have someone do our taxes this year and consult with a tax attorney. DH usually does them but with all the closing costs we paid and such I don't want to mess with it!

Desnik!!

As mus muris asinus pointed out above, that is no longer the rule. She quoted the IRS website, requoted here:

From irs.gov: --------------------------------------------------------------------------------
More Than One Home Sold During 2-Year Period

You cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude the gain, you must include it in your income.

Exception. You can still claim an exclusion, but the maximum amount of gain you can exclude will be reduced, if the primary reason you sold the home was:
A change in place of employment,

Health, or

Unforeseen circumstances (as defined earlier).
--------------------------------------------------------------------------------


Basically, you can only use the home sale capital gains exemption once every 24 months to exclude gains made on homes that qualified as your primary residence for 24 out of theprevious 60 months.

In your case, if you used the exemption on the first home sale, and since the second sale was within 24 months of the first, you cannot use the exemption on the second sale. If you didn't use the exemption the first time, you can use it on the second sale (but why wouldn't you have used it on the first sale. Best bet is to get someone to do your taxes, but ALSO to read up on the rules and regulations on the IRS website. It's all there. Even if someone else does your taxes, you're still liable if they make a mistake and lots of folks still get this change messed up even though it's been around for 6 or 7 years now, so I'd do some of my own research. Make sure you understand and agree with what they're filing!!