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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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We bought a home in November. We are considering selling it.

Resolved Question:

We bought a home in November. We are considering selling it. It is our primary residence. We are both over 55. We bought the home for $420,000, have put $100,00 into it and hope to sell for $600,000 or so. We would like to know if there are any tax ramifications for selling after only 6 months. Thank you!
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.
Your basis in the property will be $420,000 (purchase price) + $100,000(improvement expenses) = $520,000
If you sell the property for $600,000 - you will have $80,000 short term capital gain (held less than a year) which generally will be taxable at your regular tax rate.

Because you owned and use the property as a primary residence for less than two years - you are not eligible to exclude the capital gain from your taxable income.

See for reference IRS publication 523 - http://www.irs.gov/pub/irs-pdf/p523.pdf

If you fail to meet the requirements to qualify for the $250,000 or $500,000 exclusion, you may still qualify for a reduced exclusion. This applies to those who:

  • Fail to meet the ownership and use tests, or

  • Have used the exclusion within 2 years of selling their current home.

 

In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons.

  • A change in place of employment.

  • Health.

  • Unforeseen circumstances.

Let me know if you need any help.
Customer: replied 3 years ago.

 

What is an unforseen circumstance? Does financial difficulty qualify?

 

What would a reduced exclusion amount to?

Expert:  Lev replied 3 years ago.

What is an unforeseen circumstance? Does financial difficulty qualify?

Specific event safe harbors. Unforeseen circumstances are considered to be the reason for selling your home if any of the following events occurred while you owned and used the property as your main home.

  1. An involuntary conversion of your home, such as when your home is destroyed or condemned.

  2. Natural or man-made disasters or acts of war or terrorism resulting in a casualty to your home, whether or not your loss is deductible.

  3. In the case of qualified individuals :

    • Death,

    • Unemployment (if the individual is eligible for unemployment compensation),

    • A change in employment or self-employment status that results in the individual's inability to pay reasonable basic living expenses for his or her household,

    • Divorce or legal separation under a decree of divorce or separate maintenance, or

    • Multiple births resulting from the same pregnancy.

  4. An event the IRS determined to be an unforeseen circumstance in published guidance of general applicability. For example, the IRS determined the September 11, 2001, terrorist attacks to be an unforeseen circumstance.

What would a reduced exclusion amount to?

The full exclusion is $250,000 (or $500,000 for married couples filing jointly).

If you qualify for a reduced exclusion - the amount of exclusion is determined as 6month (you owned and lived in the house) / 24 month (to qualify for the full exclusion) * $500,000 (maximum exclusion for the married couple) = $125,000.

 

Let me know if you need any help.

 



Edited by LEV on 5/2/2010 at 11:16 PM EST
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22366
Experience: Taxes, Immigration, Labor Relations
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