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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11350
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hope you can explain an issue. I purchased my home for

Customer Question

hope you can explain an issue for me.
I purchased my home for $134,000 in 1988. In July 2015 I sold it at 194,500 with a short sale. The difference in the mort owed and the sale price of 199,500 is approx. $100,000.
Question 1- is the approx. $60,000 in the sale over purchase price a capital gain? since I sold with a short sale, is the 60,000 still considered as part of my adjustable gross income even thought the full 194,500 went to the bank and I didn't see any profit.
I know I have to wait to see if the government will forgive the approx. 100,000 difference in the sale price vs the outstanding mort.
Question 2- I lost my job which caused the above. I am now working. In the meantime I took about $225,000 from my IRA. I paid student loans, car etc off. I did use 35% for the taxes which the financial institution sent to the government. this was all in 2015. when I do my state income take (NY) can I use all the tax owed them in 2015 as a deduction in 2015 for the federal tax return? Or will I have to wait for next year since I expect a bill for 2015state when I file.
thanks
Question 3-
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

...

Yes, you still have a gain ... the mortgage is not relevant to the gain OTHER than how you financed the purchase

...

Now...

Expert:  Lane replied 1 year ago.

And yes, state income taxes paid (regardless of the reason... earned income, IRA withdrawals, etc) IS a deduction on the federal return IF you itemize

Expert:  Lane replied 1 year ago.

Questions?

Expert:  Anne replied 1 year ago.

Hi

Different expert here. You may exclude up to $250.000 if you are single ($500,000) if you are married filing joint. and both you and your spouse lived in this home as your primary residence This means that the gain on the short sale and/or the cancellation of debt will NOT be taxable to you in this situation. Please see below:

http://www.irs.gov/uac/IRS-Issues-Home-Sale-Exclusion-Rules

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Expert:  Lane replied 1 year ago.

Hi,

...

Your original expert here.

...

As you never came back into the chat, it appears that information has been added that was not asked.

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You asked ... Question 1- is the approx. $60,000 in the sale over purchase price a capital gain? since I sold with a short sale, is the 60,000 still considered as part of my adjustable gross income even thought the full 194,500 went to the bank and I didn't see any profit"

...

I wanted to clear up, first, before we continued the engagement, that the mortgage has nothing to do with the gain - If these first things first issues aren't cleared up, then the conversation becomes very convoluted.

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The point here is that the full 194,500 going to the bank, isn't the issue.

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Second, whether there is a gain and whether or not it is excludable are two different issues. As I mentioned above, there is a gain, Secondly, as answered but not asked, if you DO meet the test of having lived in the home for 2 out of the last five years, this gain would be excludable (under IRC § 121) ... although we had not gotten far enough in the engagement and gathered enough data to make that determination yet.

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Third, again, yes, the state taxes paid WILL be a deduction on your 2015 federal taxes if you itemize.

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Hope this helps to clarify.

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Please return to the conversation so that I can give you the kind of specificity that can only be provided with your providing more data.

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If this HAS helped, and you don't have additional questions on this, I'd appreciate a positive rating (by clicking the stars or smiley faces on your screen) ... that's how we're credited for the work here)

.

Lane

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