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.
Published: Dec 17, 2004