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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I believe we paid 44,900 for this house in 1974. We have added

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I believe we paid 44,900 for this house in 1974. We have added 2 rooms, new roof, vinyl siding. My son thinks we have already brought this price up to $100,000. Last year a realtor put the house up for sale for somewhere in the $600,000's. We are located on water at the Jersey shore. So you see, capital gain would be quite large. I just get so disgusted because our 1st home in 1957 was a business and apartment atXXXXX, Irvington, NJ ; then a new home one year later atXXXXX Union, NJ and a rental property in Union, also; 8 yrs later 229 Friar Lane, Mountainside, NJ, 2 Dawn Lane Ocean Beach 3, and finally in 1974XXXXX Chadwick Beach Island. We certainly have paid a great many taxes. Now that we are old and hurting big time, we have to give most of what we have to the govt.!?!
Submitted: 6 years ago.
Category: Tax
Expert:  Merlo replied 6 years ago.

Hello JA Customer,


Is this home that you are selling for $600,000 your primary home? Have you actually lived in that home for at least 2 of the last 5 years?


Or is this home a vacation property or rental property?





Edited by Merlo on 6/2/2010 at 12:00 AM EST
Customer: replied 6 years ago.
We have lived here full time since 1995. Before that, we only spent the entire summer here. However, as I wrote before, although we still are here for 6 months of every year we made Florida our residence where we vote, etc. That is because in FL if you become a resident they can only raise your property tax no higher than 3%. I have been told since we did that now not only will be capital gain tax be very high, but, I will also be punished because I live in FL for 6 months also. Actually, last year, because our son passed away, at age 48, we spent almost the whole year in this house. I'm just wondering if , by chance, we are lucky enough to sell for $550,000 can you predict what our taxes will be- including the fact that we are no longer consider NJ people. Forget the fact we were born here, went to school and college here and bought many homes here, plus raised our 5 children here.
Expert:  Merlo replied 6 years ago.

Hello again JA Customer,


Under current law, taxpayers may exclude up to $250,000 of any gain they have on the sale of their primary home before paying tax. The exclusion amount is increased to $500,000 if you are married filing a joint return, which I assume you are.


The IRS defines a primary home as one you have owned for at least 2 years and one that you have lived in for at least 2 of the last 5 years. The 2 years use requirement does not have to be consecutive months. If you have more than one home, your primary home is considered to be the one where you spend the most time. Since it sounds as though you spend equal time between your FL home and your NJ home, you could classify the NJ home as your primary residence for purposes of this tax exclusion. You can only claim one principal residence at a time and you can only claim this dollar exclusion on the sale of a primary residence once every two years. So if you decide to claim this NJ residence as your primary home for tax purposes, all that really means is that you could not turn around and sell your FL home for at least another 2 years if you again wanted to claim the exclusion on that sale.


The botXXXXX XXXXXne here is that if you paid $44,900 for this home and then added improvements of another $55,000 or so, that brings your actual basis up to around $100,000. If you now sell the home for $600,000 you would have a $500,000 gain. However you meet both the ownership tests and the use tests to claim the $500,000 exclusion. That being the case, you would not owe any capital gains tax on the sale of this home.


If this was helpful please press the Accept button.


Thank you JA Customer



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