Question About Capital Gains Taxes
REM # A626
By Ilyce R. Glink
Summary: A reader asks whether the profits they've made selling property will be taxes as capital gains or as ordinary income.
Q: We purchased a condo in May, 2004 at a really great price. We put a bit of work into it and we’re ready to settle in for the long haul when my "partner" was offered a fabulous new job. But, the new job is 175 miles from where we live. So, we’ll have to move.
As luck would have it, our neighborhood has become a very popular spot and it looks like we’ll clear about $60,000 after we pay the real estate agent’s commission.
Will that $60,000 be taxed as capital gains or ordinary income? We plan to purchase a home in our new city as soon as we get there. If it is going to be taxed as ordinary income, can I claim the income? I am on the deed but not the mortgage.
A: Because your partner is moving to take a new job, you may be able to take a portion or all of those profits tax-free.
Here's how the law works. If you stayed in your home for 24 months, you and your partner (provided you each are owners of the property) could take $250,000 in profits tax-free. Because you'll be there only about 6 months, you should be able to take 1/4 of the maximum profit tax-free. Assuming you both own the property, that would be $62,500, or 1/4 of $250,000 for each of you.
That should cover your profit. By the way, if you continue to pick "hot" neighborhoods, and make this kind of cash in less than a year, you might want to think about doing this on a regular basis.
For more details, talk to your accountant or tax preparer. You may also want to look up IRS Publication 523, "Selling Your Home" at www.IRS.gov.
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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