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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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I am going to sell a home which I have owned for 9 1/2 years,

Resolved Question:

I am going to sell a home which I have owned for 9 1/2 years, but have rented out for the past three years. I am a Senior in an income bracket of @40,000 and I itemize my taxes using Turbo Tax. My question is: what percent of the sale price will I have to pay in taxes.
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

LEV :

Hi and welcome to Just Answer!
If the property was used as your primary residence at least two out of last five years before it was sold - you might be eligible to exclude part of your capital gain.
If the property was rented more than three years - and you are not eligible for exclusion mentioned above - you need to determine the capital gain.
Please consider following example - assuming you purchase the property for $100,000, and made improvements for $3000. - so your basis is $103,000.
Assume that you are selling it for $150,000 and have $10,000 in selling expenses - so your capital gain is $37,000.
In additional - you would need to recapture the depreciation you claimed while the property was rented - estimated amount of depreciation claimed is $100,000 / 27.5 years * 3 years = $10,909.

The amount of depreciation recapture - in our example $10,909 - will be taxed at your regular tax rate - based on your total income, filing status, deductions, etc.
The capital gain - in our example $37,000 - will be taxed at reduces long term capital gain tax rate - not more than 15%. Part of that capital gain that otherwise would be taxed at 15% or less will be taxed at zero percent rate.
Let me know if you need any help or clarification.

Customer:

I moved to CA from MS three years ago in Aug. so Ca is my home. However I lived in MS during the summers of those three years (as its a college town and I rented it furnished from Aug to either may or june) and will go back again for part of this summer. Will that make me eligible for no tax when I sell?

LEV :

To be eligible for exclusion - that should be your primary home - if you just temporary lived there - that will not change your primary home which is assumable in California.

LEV :

For definition of your primary home - see IRS publication 523 - http://www.irs.gov/pub/irs-pdf/p523.pdf
If you have more than one home, you can exclude gain only from the sale of your main home. You must include in income gain from the sale of any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
To exclude gain under the rules in this publication, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale.

Customer:

Since I lived there for 2 out of the past 5 years, with it being my primary home until August 08, I guess I would have to have sold it in August to make the two year rule applicable? Question is, is the time frame based on the tax year (Jan 08) or the would it have to be August 08 to August 11? eg do I have until Jan to sell it and make me eligible for the tax relief. Also do seniors get any tax relief in these things in addition to the 5 year rule?

LEV :

That is correct - if you moved out on Aug 31, 2008 - and if sold before Aug 31, 2011 - you would satisfy the use test - lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale - and would be able to exclude the capital gain. Still you woudl be required to include depreciation recapture into your taxable income - in our example $10,909.

Customer:

Oh, you answered while I was typing. Thanks. I think that takes care of it. I will have to study what you said but think I can proceed with that information. I'll print it out from my email. Thanks. signing off, Sue

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