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Hello, My 83 year old mother is selling her home in NJ.

Hello, My 83 year old mother...
Hello,

My 83 year old mother is selling her home in NJ. She hasn't lived in it for 4 1/2 years (rented it for 3 years of the 4 1/2). Four and a half years ago, she moved out of the home due to health reasons and sought a 55 and over community (not assisted living). We know about the 2/5 year IRS rule for capital gains exclusion, but she cannot live in the house due to her failing health.
1) Will the IRS give her any capital gains exemption due to her health? (She did not move into a nursing home.)
2) She has owned the house for 50 years and lived there for 46 1/2 years, what can she claim as a deduction? Can she go back 50 years?
3) What is the long-term capital gains tax rate?
4) Will she pay for the 3.8 Obama Care Tax Rate?

Thanks,
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Answered in 1 minute by:
5/3/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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MyVirtualCPA :

Hello how are you today?

MyVirtualCPA :

Unfortunately, the answer to your first question is that none of the gain would be excluded. There are no exceptions to the 2/5 year rule for capital gain exclusion

MyVirtualCPA :

She can deduct from the home sale what she initially spent on the house, plus any improvements she made over the years

Customer:

What is included in improvements?

MyVirtualCPA :

remodeling

MyVirtualCPA :

a new roof

MyVirtualCPA :

hvac

MyVirtualCPA :

anything to improve the home.

MyVirtualCPA :

But not repairs, decoration, etc

Customer:

Will she have to show records back to 50 years

Customer:

Also, what is the long-term capital gains rate?

MyVirtualCPA :

if she's audited, yes. She would need documentation

MyVirtualCPA :

The long term capital gains rate is 15%, but if she's in the 10 or 15% tax bracket the rate is 0

MyVirtualCPA :

If she's living off social security income, chances are good she's in those lower brackets

Customer:

so if she had a 200K capital gains in the house, the 200K would not be taxed as income?

MyVirtualCPA :

Further the 3.8% tax is only for those with an AGI over $200,000; $250,000 if married

Customer:

Just one more question: so if the 200K capital gains is not counted as income, then she would not pay the 3.8% tax if her "income" is under 200K?

MyVirtualCPA :

It is included in her AGI

MyVirtualCPA :

It is just taxed at favorable rates

Customer:

So with a 200K capital gains she would pay the extra 3.8%?

MyVirtualCPA :

If her AGI is above $200,000 then yes

Customer:

Ok, thanks very much!

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
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Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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