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I live in Austin Tx. My wife and I sold our house that we lived

in for only 9 months...
I live in Austin Tx. My wife and I sold our house that we lived in for only 9 months. Net gain proceeds 54k that we split equally. We are separated/living in separate residences however, we are at present still legally married. We have no legal separation in place however the reason we sold the house is due to our breakup. With her half of the house sale monies she did a rollover into a new house. I am worried about the capital gains tax hit on my half portion of the 54k. I am building a house but it won't be ready until January of next year. We plan on doing our federal income taxes as married filing joint for the 2013 tax year. Will the "Safe Harbor" IRS clause apply to our situation related to unforeseen circumstances as the reason for selling our home if the following occurs: Divorce or Legal Separation under a divorce decree or SEPARATE MAINTENANCE. Will the "separate maintenance" provision fit our condition and therefore allow us to avoid a major capital gains tax hit? Since the old house was sold in September do I have a grace period extending into next year in which to rollover my monies into the new property?
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Answered in 2 minutes by:
11/9/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified

Megan C :

Thanks for your question. My name is XXXXX XXXXX I would be happy to help you today?

Megan C :

How are you today?

Megan C :

Both of you will have capital gains, even if you did put the new proceeds into a new home.

Megan C :

Putting your money in a new home does not defer gain.

Megan C :

In order to meet the "unforeseen circumstances" clause, your home sale would need to be because of a divorce, and there's no divorce or decree of separate maintenance.

Megan C :

Separate maintenance is when you have a legal separation - it's still a legal process.

Customer:

what is separate maintenance?

Megan C :

It's a legal separation

Megan C :

In some states, you can be legally separated, but not divorced

Megan C :

You'd still have court paperwork

Customer:

Ok so the other part of my question do I have a window of opportunity to turn my equity portion into my new house being built early next year?

Megan C :

No, that's what I was saying - you can't avoid capital gains tax by investing in a new home.

Megan C :

Neither can she - she will owe tax on her half as well

Customer:

Do i have opportunity to rollover my equity portion into my new house in January next year without a cap gain tax hit?

Megan C :

No, you do not. You cannot roll your equity portion into a new house without a capital gains tax hit

Customer:

are you there

Megan C :

Yes, can you see my response?

Customer:

I want to know if I have time to rollover my cash proceeds from the sept 2013 house sale into January 2014 new home I am building without a cap gains tax hit? I only lived in the old house 9 months

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Kenneth,

I switched our question into a different mode, since you could not see my responses.

You cannot roll the equity portion into a new home to avoid capital gains. You still owe capital gains - there's no way to defer it.

I'm truly sorry that I don't have better news for you in this situation. Please let me know if you have further questions. You can still reply to me below. If I've answered your questions, please rate positively so that I may receive credit for assisting you today.
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified
Megan C and 87 other Finance Specialists are ready to help you
Ask your own question now
Kenneth,

Here's our live chat transcript. I will say that you cannot roll your funds into a new home to avoid capital gains tax. There's no way to defer the gain in your situation.

Megan C :

Thanks for your question. My name is XXXXX XXXXX I would be happy to help you today?

Megan C :

How are you today?

Megan C :

Both of you will have capital gains, even if you did put the new proceeds into a new home.

Megan C :

Putting your money in a new home does not defer gain.

Megan C :

In order to meet the "unforeseen circumstances" clause, your home sale would need to be because of a divorce, and there's no divorce or decree of separate maintenance.

Megan C :

Separate maintenance is when you have a legal separation - it's still a legal process.</pCustomer:

what is separate maintenance?

Megan C :

It's a legal separation

Megan C :

In some states, you can be legally separated, but not divorced

Megan C :

You'd still have court paperwork</pCustomer:

Ok so the other part of my question do I have a window of opportunity to turn my equity portion into my new house being built early next year?

Megan C :

No, that's what I was saying - you can't avoid capital gains tax by investing in a new home.

Megan C :

Neither can she - she will owe tax on her half as well</pCustomer:

Do i have opportunity to rollover my equity portion into my new house in January next year without a cap gain tax hit?

Megan C :

No, you do not. You cannot roll your equity portion into a new house without a capital gains tax hit</pCustomer:

are you there

Megan C :

Yes, can you see my response?</pCustomer:

I want to know if I have time to rollover my cash proceeds from the sept 2013 house sale into January 2014 new home I am building without a cap gains tax hit? I only lived in the old house 9 months

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Customer reply replied 4 years ago

I am confused because the IRS says a married couple, which we still are, regardless of age can exclude 500,000 of gain on the sale of their home so long as they lived there 2 or more years. My problem is we live there only 9 months. Now if I get a house this year and turn my equity into the property are you saying I still have to pay cap gains tax because of the 9 month thing

Thanks, XXXXX XXXXX for the technical difficulties. I could tell you couldn't see my responses.

I'm truly sorry, but yes - since you only lived in the house 9 months, you cannot exclude any of the gain. If you got divorced, a portion of the gain could be excluded because of unforeseen circumstances. However, there's no divorce and no legal separation. There's no way to avoid the capital gains tax in your situation, unfortunately and I hate to be the bearer of bad news. Please let me know if I can help you any further, and please don't shoot the messenger!

Thanks, and once you have received the answer you need, please rate me positively so that I may receive credit for assisting you today. Thanks again.
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
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