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Richard, Tax Attorney
Category: Capital Gains and Losses
Satisfied Customers: 55278
Experience:  29 years of experience as a tax, real estate, and business attorney.
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We live in Manhattan, in a rental apt which is considered

Customer Question

we live in Manhattan, in a rental apt which is considered primary residence.we file taxes in this residence. we own a house for 17 years in the same state , New York , the house is about 65 miles from our primary residence,we use the house and was never rented.
we get some mail to that address.we decided to sell the house and retire,the house is worth $650,000 ,what is the law for capital gain,is it considered second primary?
thank you
Submitted: 9 months ago.
Category: Capital Gains and Losses
Expert:  Richard replied 9 months ago.

Hi! My name is Richard & I will be helping you today! It will take me a few minutes to type a response to your question. Thanks for your patience!

Expert:  Richard replied 9 months ago.

Section 121 of the Internal Revenue Code provides for an exclusion of up to $500,000 of gain for a married couple from the sale of their principal residence. Section 1.121-1(b) of the Regulations to this code section provides that a facts and circumstances test will be used to determine whether or not property is used as the taxpayer's principal residence. If a taxpayer alternates between two properties, using each as a residence for successive periods of time, the property that the taxpayer uses a majority of the time during the year will ordinarily be considered the taxpayer's principal residence. Your gain is based not on the value, but the gain...which is the sale price less (what you paid for the house plus the cost of any improvements you made to the house). You only need to use this house as your principal residence for an aggregate of 2 years of the preceding 5 years before the sale.

As this is a "facts and circumstances" situation, it's up to you to make the determination; given how you framed your facts, this home wouldn't fall within the definition of your principal residence. If, in evaluating your situation, you think you can come up with an aggregate of 2 years (doesn't have to be consecutive) you could claim this exclusion and exclude up to $500,000 in gain. Given that you have taken advantage of this exclusion previously, your likelihood of getting audited is very small in any case.

For any gain not excluded, the Federal tax laws concerning taxation of long term capital gains 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 brackets, and
20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.

In addition, starting in 2013, capital gain income became subject to an additional 3.8% Medicare tax for taxpayers with income at or above a certain threshold. This 3.8% Medicare surtax applies to taxpayers with “net investment income” in excess of threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly.

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Customer: replied 9 months ago.
Thank you ,I heard that if your property is within certain distance it might be considered secondary primary. Is there anything like this?
Expert:  Richard replied 9 months ago.

You're very welcome. There is not; but, the fact that it is so close will give credence to the fact that you accumulated at least 2 years out of the last 5 years as your principal residence. :)