Capital Gains On Sale Of House
REM #F651
By Ilyce R. Glink
Summary: A reader has a friend who is selling a home after only living there for 18 months. Ilyce explains the tax implications and some exceptions to the capital gains law.
Q: A friend of mine purchased a house in January, 2004. But his plans have
changed and he now must sell his house, although it’s only a year and
a half later.
His profit will be approximately $80,000. Does he have a certain time frame to reinvest before having to pay capital gains?
A: Unfortunately, your friend has to live in his house as a primary residence for two of the past five years in order to take advantage of the capital gains rules. Just to be perfectly clear, when the IRS revised its rules several years ago, it eliminated all of the rollover replacement rules.
You cannot escape capital gains tax by rolling over your profit from one property
to another.
If your friend is selling because of a divorce, medical reasons, or a job move,
it's likely he will be able to take a proportionate share of the profits tax
free.
For example, let's say your friend closes July 1, 2005. He would have lived
in the property for 18 months, or 75 percent of the time needed to take up to
$250,000 in profits (or up to $500,000 if he's married) tax free.
If he gets a new job that is at least 50 miles away from his old one, or has
extremely high medical expenses or is going through a divorce, he might be able
to take 75 percent of the maximum profit amount tax free, or up to $187,500
(if he's single) or up to $375,000 if he's married, tax free.
Assuming your friend falls into one of those categories, he would be able to
keep his $80,000 tax free, which would be pretty nice money for living somewhere
for just 18 months.
For more information check out IRS Publication
523 "Selling Your Home."
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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