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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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Paying Capital Gains

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I have lived in my house for 1 year & 7 months. Selling it at 420,000. after all expenses. My income is taxed at the 15% rate. What capital gains will have to pay? Can I reduce my capital gains?

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.  Since you have owned 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).    Don't forget state taxes.

If you qualify for an exception and are able to use a pro-rated exclusion, it would be calculated approximately as follows;


Single 


 (19 months/24 months) * $250,000 = $197,917   


MFJ


 (19 months/24 months) * $500,000 = $395,833


These calculations are approximate as the final calculation should be done using the number of days you owned and occupied the residence as compared to 730 days (i.e. 2 years).

 




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
Christopher Phelps and 4 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Chris, Just to be clear, if Capital gain's (Cg's) is pro rated we'll pay Cg's on the $395,833 at 15%? And, what or who determines moving for a medical reason; as a veteran can moving to be near the va hospital qualify me for medical? other wise, we pay at the 15% rate of the selling price 420,000?

Thanks for ur help! angel

Generally, the medical safe harbor is available if the primary reason a sale is completed is to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury.  A safe harbor is provided for a physician recommended change of residence.  A safe harbor under the unforeseeable circumstances exception may also be available if the current residence is no longer suitable (i.e. two-story for a person incapable of negotiating stairs) or if you can not financially maintain the home because of medical expenses


Also, the $395k amount is the GAIN your may EXCLUDE.  Thus, if your gain is less then that amount, you have no tax liability (assuming you qualify for the exception).   Gain is calculated by taking your net selling price (i.e. contract sales price less selling expenses such as broker commission and escrow charges) less your original purchase price plus the cost of improvements.  If you held the property for more then one year, any taxable gain is subject to a maximum Federal tax rate of 15%.  Florida will not tax the gain.

       
Customer: replied 11 years ago.
I did reply. What else must I do? Accept answer before replying/

See my response to your reply.  Go ahead when you are ready and accept the response.


Thanks

Customer: replied 11 years ago.
Thanks for your help I accept your answers and will consult with my doctor for the medical reason. Thus if we exclude 395,000 from 420,000 our gain is 25,000!

Your note indicates that the $420,000 is the selling price, not the gain.  Reduce the selling price by the selling costs and your original purchase price (plus improvements) to determine your gain.  Then compare the gain to the $395K exclusion to determine if any gain is taxable.


Go ahead and press the accept button rather then the reply.


Thanks.

Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Oops, The 420,000 is the gain on the house after all expenses and improvements that qualified are realizied. Angel
Ok. Just making sure you understood the difference between the terms selling price and gain.  Your only five months away from qualifying for the full exclusion.  If you qualify for the medical exception you only need two more months in the residence to prevent all the gain from being taxable.  Hope you can stay in the house unless you have already sold. 
Customer: replied 11 years ago.
I understand,We are closing in July. The medical will help to reduce the gains, which I'm pretty sure I will qualify for, since I have seringomyelia.

Thanks again. Angel

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