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Lane
Lane, CFP, MBA, CRPS
Category: Tax
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Experience:  Providing Financial & Tax advice since 1986
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Capital Gains Tax question Arizona Purchased home in 2011

Resolved Question:

Capital Gains Tax question Arizona

Purchased home in 2011 for 230K. Put 25K in upgrades which were used (I think) in 2012 taxes. Have an opportunity to sell house turn key (furniture, everything) for 290K to a cash buyer from Canada.

Our income is as follows:
Mine
$2,332 Federal Medical Retirement
$2,823 VA Disability (non-taxable)

Spouse
$1,891.00 Federal Medical Retirement
$ 123.00 VA Disability (non-taxable)

we are planning on moving out of state to South Carolina for cheaper cost of living and better VA benefits.

Can someone tell me about how much it will cost in capital gains or is it better to sell the house for $260K and take our stuff.

Thank you,

Sandy
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi Sandy,

NPVAdvisor :

If this was you personal residence, (defined by IRS as used as residence in 2 of the last five years - and can be any 24 months), then the capital gain is excluded (250,000 for single files and 500,000 fr those married filing jointly)

NPVAdvisor :

I would (1) be sure you don't close until it's been a fill two years and

NPVAdvisor :

(2) do you have the option of selling without selling them the furniture?

Customer:

Mistake..It was purchased in August 2012....not 2011. We have owned the home for 10 months. It is personal residence.

NPVAdvisor :

ahhh

NPVAdvisor :

That's too bad

NPVAdvisor :

let me see

NPVAdvisor :

lets do this ...

NPVAdvisor :

can you ballpark your taxable income (total)?

NPVAdvisor :

of course, if you could wait the additional 14 months that ONE consideration

Customer:

We can sell without furniture but it will still only be less than 2 years. our taxable income is 50,676. No children. I assume the 28 percent bracket.

NPVAdvisor :

OK a couple of things ...

NPVAdvisor :

For those filing a married filing jointly return: here are the brackets

NPVAdvisor :

  • 10% on taxable income from $0 to $17,850, plus

  • 15% on taxable income over $17,850 to $72,500, plus

  • 25% on taxable income over $72,500 to $146,400, plus

  • 28% on taxable income over $146,400 to $223,050, plus

  • 33% on taxable income over $223,050 to $398,350, plus

  • 35% on taxable income over $398,350 to $450,000, plus

  • 39.6% on taxable income over $450,000.

NPVAdvisor :

You're squarely in the 25% bracket .. now, ...

NPVAdvisor :

The new capital gains tax rates for 2013 and future years are as follows:



  • 0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,

  • 15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax bracket

NPVAdvisor :

SO you DEFINITELY wan to wait until you've held the house for one year, so as to qualify for the long term capital gains rate, rather than it bieng taxed at ordinary income rates

NPVAdvisor :

Woops, so sorry

NPVAdvisor :

you ARE in the 15% bracket if you file jointly

NPVAdvisor :

you see what that means? (IF you sell after one year)?

NPVAdvisor :

If you wait, so that the sale happens after one year, so that you will have a long-term capital gain, rather than a short term gain, your capital gains rate is 0

NPVAdvisor :

This was made permanent as part of the American Taxpayer Relief Act (the fiscal cliff deal)

NPVAdvisor :

Still with me?

Customer:

Okay...We can hold it for a year (Canadian buyers don't want to move in until December or so)...So when do the 2013 taxes take in effect? So it we wait until September 2013 (house was bought in August 2012) we will have a long term capital gains tax versus a short term capital gains tax and we will owe 0 percent capital gains. Is this correct, or am I just dreaming...


NPVAdvisor :

:) ... I just LOVE getting to give good news (so many times, in THIS are we have to deliver bad news)

NPVAdvisor :

No you are not dreaming

NPVAdvisor :

These laws ARE in effect, and will affect everything that happens in this tax year, 2013

Customer:

Yeah!!!!! Wow, what a difference!! thank you!!!!

NPVAdvisor :

It all turns on being sure you have a greater than one year holding period

NPVAdvisor :

Be usre you look at your closing paperwork to pin down the date of sale, when you acquired

Customer:

Thank you so much! We would normally wait two years but interest rates are climbing and we want to capitalize on that! Have a great day...

NPVAdvisor :

You too! Congratulations!

NPVAdvisor :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.

Customer:

Your are sure we don't have to wait 2 years??

NPVAdvisor :

Also, you can save this (bookmark, save as a favorite) to come back for reference

NPVAdvisor :

Yes there are two different issues

NPVAdvisor :

(1) having the gain EXCLUDED by waiting two years

NPVAdvisor :

(2) having a zero capital gains rate for long term capital gains

NPVAdvisor :

here's what's important:

NPVAdvisor :

... Don't sell until after one year, so it qualifies as a LONG TERM capital gains (asset held for more than one year)

NPVAdvisor :

... Be sure that you file jointly tis year (when you do your 2013 taxes (by april of 2014)

NPVAdvisor :

sorry "This Year" ... meaning on your 2013 taxes due by Apr of 2014

Customer:

So we are only paying tax on our income, essentially? I guess I am still a little confused about Zero capital gains tax versus excluded?

NPVAdvisor :

Taxable income must be below $72,500 ... kepping you in the 15% tax bracket or less (which is what determines that LONG TERM capital gains rate of zero)

NPVAdvisor :

again, just two different issues

NPVAdvisor :

All capital gains have a rate at which the tax is applied ... and for those in the regular income tax bracket of 15% or less that rate is zero

NPVAdvisor :

There is ANOTHER law that excludes ALL capital gains (regardless of income) is you lived in the home for two years

NPVAdvisor :

sorry "IF" you live in the home for two years (that one doesn't apply to your situation)

Customer:

Okay...We always have a tax accountant for our taxes and they should know that.....I am assuming...Thank you so much. I will send this in with my taxes :)

Customer:

I will make sure you are rated...Thanks again!!

NPVAdvisor :

But as long as you sell after holding for one year, the zero rate applies for you

NPVAdvisor :

whether its a house a stock or farm land (as long as it's long term) held for more than one year

NPVAdvisor :

yes, they'll know

NPVAdvisor :

Thanks so much

Customer:

A year it is....Thanks!

Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3632
Experience: Providing Financial & Tax advice since 1986
Lane and 7 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thanks so much for the rating and bonus Sandy!

I enjoyed working with you.


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If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,

Lane

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