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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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Customer Question

We are Canadians who sold a house in Az. Do we have to pay tax on this money? thank youCustomer
Submitted: 11 years ago.
Category: Tax
Customer: replied 11 years ago.
When we sold our house in Az. & showed a capital gain are we liable for a Federal tax on our gain & if so, what IRS forms do we fill out & where do we get them? Thank you ...Customer
Expert:  Christopher Phelps replied 11 years ago.

Were you resident aliens or permanent residents at the time of sale?


When did you sell the home?  Was it your main residence or a vacation home?  How many days were you in the U.S. each calendar year frm 2002 to the present (this is to determine whether you meet the Substantial Presence Test)?


 

   
Expert:  Christopher Phelps replied 11 years ago.

Generally speaking, pursuant to IRC Sec. 897 and IRS Pub 519, the IRS seems to be taking the position that even if you are considered to be a non-resident alien, you may use the Sec. 121 exclusion providing you meet the requirements.


Therefore, if as of the date of sale you have owned and used the property as your personal residence for 24 out of the last 60 months, then you can exclude up to $250,000 of gain ($500,000 if married filing joint) if filing a single or MFS return.


If you are in your principal residence for less then 24 months you may not use the Sec. 121 exclusion (i.e. $250K/$500K exclusion) unless you meet one of the exceptions. You may use a pro-rated exclusion if the reason you are moving is related to a job change, for medical reasons or for some other unforeseen circumstance.

The pro-ration is calculated by dividing the number of days you both owned and occupied the property as your principal residence by 730 days (i.e. two years). Multiply the resulting percentage by $250K if single or $500K if MFJ.



If you do not meet one of the exceptions, then the gain is taxable.  If you own the property for more then one year, then the gain will be treated a long-term and will be taxed at capital gain rates (i.e. a maximum of 15% Federal).  Otherwise the gain is treated as ordinary income the same as wages and interest subject to whatever your marginal tax rate is.  Don't forget state taxes.
 


You will need to fill out Forms 1040 along with Schedule A, B and D.  For AZ you will need to fill out Form 140 or 140NR.  The federal forms may be obtained at www.irs.gov.  The AZ forms may be obtained at http://www.azdor.gov/incforms_2004.htm.

 


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