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There are no tax penalties levied on the length of time you live in your home. For income tax purposes, you need to apportion your income between states / DC based on residency dates, and will then generally be able to receive a credit for income taxes paid to another district and/or the ability to apportion income.
What you may want to note is that if there is a gain for when you sell a main home, you may be able to exclude the gain from income. I'm not sure where you moved from and if you are selling that house, but if so you will be required to wait for a period of time in your Washington DC home before you can again sell that one and exclude gain.
How Current is This?
Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer's principal residence for periods aggregating 2 years or more.
Thank you for your question.
That is correct.
There is a $250K limitation ($500K married filing joint) to the amount of gain that can be excluded. See the link above.
Your tax rate is going to bear on other income, deductions, and credits of which I am not aware. Medical expenses, for example, could count.
The extent of depreciation claimed on your rental property and your basis in that rental property is not available to me. This is critical for calculating gain. I'm just going to assume your basis is around $25K after depreciation given what you said you paid for it.
This gain will probably be taxed at a rate of 20% for 2011, unless Congress Acts, but a portion could be taxed at 10% or even an ordinary rate for the depreciation (IRC 1250).
Furthermore, IRC requires you allocate the excludable gain to periods of non-qualified use (beginning on/after January 1, 2009 - see below), and will also allow certain exceptions for medical purposes to the two year ownership and use requirements above (see IRC 121(c)).
Long story short, get the help of a tax professional who has copies of your prior returns, current year documents, and other specifics to get a tax projection should you wish to sell the house.
I'm going to give a nice guess here and say for 1) $50,000, 2) $33,000, and for 3) $16,500. I believe I'm off, sorry.
Thank you again.
(4) 1 Exclusion of gain allocated to nonqualified use
(A) In general Subsection (a) shall not apply to so much of the gain from the sale or exchange of property as is allocated to periods of nonqualified use.
(B) Gain allocated to periods of nonqualified use
For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio which-
(i) the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to
(ii) the period such property was owned by the taxpayer.
(C) Period of nonqualified use For purposes of this paragraph-
(i) In general The term "period of nonqualified use" means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer's spouse or former spouse.
(ii) Exceptions The term "period of nonqualified use" does not include-
(I) any portion of the 5-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer's spouse,
(II) any period (not to exceed an aggregate period of 10 years) during which the taxpayer or the taxpayer's spouse is serving on qualified official extended duty (as defined in subsection (d)(9)(C)) described in clause (i), (ii), or (iii) of subsection (d)(9)(A), and
(III) any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the Secretary.
(c) Exclusion for taxpayers failing to meet certain requirements
(1) In general
In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a), and subsection (b)(3), shall not apply; but the dollar limitation under paragraph (1) or (2) of subsection (b), whichever is applicable, shall be equal to-
(A) the amount which bears the same ratio to such limitation (determined without regard to this paragraph) as
(i) the shorter of-
(I) the aggregate periods, during the 5-year period ending on the date of such sale or exchange, such property has been owned and used by the taxpayer as the taxpayer's principal residence; or
(II) the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange, bears to
(ii) 2 years.
(2) Sales and exchanges to which subsection applies
This subsection shall apply to any sale or exchange if-
(A) subsection (a) would not (but for this subsection) apply to such sale or exchange by reason of-
(i) a failure to meet the ownership and use requirements of subsection (a), or
(ii) subsection (b)(3), and
(B) such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances.