we cashed in 175,000 of our stock to purchase our retirement home. Our income was not and is not enough to pay house payment. Social Security is our only income. What we will have to pay in taxes for cashing in our stock? We live in Iowa.
State/Country relating to question: Iowa
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When you cash in stocks, providing they are not inside a retirement vehicle such as an IRA or such, you pay Income Tax on the gains of the stock. For example, if you acquired this stock for $100,000 and sold it for $175,000, you pay tax on the $75,000 gain.
If you held the stock for more than one year, you will pay federal capital gain rates of up to 15% for 2012. If you held the stock for less than one year, you will pay tax at your ordinary income tax rate, which could be up to 35%. You will also have state tax to pay on the gain as well. If you had dividends reinvested, you will add these to your cost basis as well. Stock splits and mergers will also affect your cost basis.
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well we thought if our old home sold before the years end we could replace this with the mney from the sale. Is this true and is this legal?
Each transaction stands on its own.
You cannot have a "like-kind" exchange of two different things: a house and stock in a corporation.
It is also not like a retirement account where you can take money out and return it to a retirement fund within 60 days and not realize taxable income.
Each house sale stands alone as well. When you sell one residence you have a capital gain (or loss). If you qualify, up to $500K of the capital gain is not taxable.
Once you sell the stock, you have a realized capital gain or loss.If you held the stock for more than a year, the tax rate is 15% or lower (depending on your Tax Bracket).
The rule you cite in your question "replace money from the sale of the house before the end of the year" is a misunderstanding or a rumor you misheard.