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US only
Simple Question for you....I cant figure this out.
I bought my house 18 months ago for 105,000. I sold it for
160,000. I did not live in it for the 24 months I hear is
required to avoid paying capital gains. Do I only pay capital
gains on the profit made? Or on the entire purchase price of the
house I sold? I am a little confused and not too terribly
bright. Any advice is helpful.
Thanks
B XXXXXX
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David Ingram replies:
In general, you have to live in the house in the USA for the full
two years to get the full $250,000 capital gains tax free.
however, there are some exclusions that will allow you to
pro-rate the exclusion:
These include but are not limited to:
1.. Death of the taxpayer, a spouse, a co-owner or any member
of the taxpayer's household.
b.. Divorce or legal separation.
c.. A job loss that results in eligibility for unemployment
compensation.
d.. A change in employment that leaves the taxpayer unable to
pay the mortgage or basic living expenses.
e.. Multiple births from the same pregnancy;
f.. Damage to the residence resulting from a natural or
man-made disaster, or an act of war or terrorism.
g.. Condemnation, seizure or other involuntary conversion of
the property.
They are not limited to the seven because the regulations also
give the IRS commissioner the discretion to determine other
circumstances that qualify as unforeseeen.
For instance, if you change your job and that causes you to sell
your house the IRS rules are very straightforward. To quote, "A
home sale will be considered related to a change in employment if
a qualified person's new place of work is at least 50 miles
farther from the old home than the old workplace was from that
home." this, of course, is the same distance rule that applies to
claiming moving expenses ( note that in Canada the rule is 25
miles).
Another reason could involve your health. If a physician were to
recommend a change of residence for health reasons, that would
allow you to prorate your gain.
Therefore, if any of the above "9" reasons apply to you, you can
exclude 18/24 times the profit of $55,000 (less real estate
commission) or $41,250. The balance of $13,750 would be taxable
on your Schedule D at capital gains rates.
If none of the above applies and you just sold the house, then
the whole $55,000 is taxable.
The good news for other American readers is that if you have paid
tax on the profit in the past and now see that you would have
qualified for this new exemption, you can file a 1040X and claim
a refund all the way back to 1997.
david ingram - [email protected]
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - (604) 913-9123 www.centa.com
Cell is (604) 657-8451 (10 AM to 10 PM seven days a week)
US / CANADA / MEXICO
Working Visa and Income Tax Specialists
US - CANADA REAL ESTATE TAX SPECIALISTS
Be ALERT, the world needs more "lerts"
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