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Ive been told that I have to file a form IT-2663 when selling

I've been told that I...
I've been told that I have to file a form IT-2663 when selling my old house in Brooklyn, NY. I'm currently living California. The profit on the house will be less than 500K, and I'll be filing my taxes as "married" next year, so I think I should be exempt from state taxes on the profits (I lived in the house two out of the last five years)

Since there's on indication on the form about a 500K exemption, what should I do? Should I fill out the form, but then include a letter explaining the exemption?
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6/19/2013
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 :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

The form IT-2663 is NOT required when you have a primary residence

MyVirtualCPA :

See the instructions to the form

MyVirtualCPA :

The Form IT-2663 is only required for non-personal residence homes

Customer:

Cool, thanks! The issue might be that I left NY 2.5 years ago to live in CA and have rented out rooms in the house for the past seven years. I've also claimed depreciation as part of my taxes when I rented out rooms in the house. I lived there as my primary residence, but it is not currently my primary residence. Also, my wife isn't an official owner of the house, since I bought it before we met. Will this effect any of the paperwork?

MyVirtualCPA :

Oh so it wasn't 100% used as your principal residence. You will need to follow the instructions on a partial residence then

MyVirtualCPA :

You will use the worksheet on page 2

MyVirtualCPA :

When filling out the worksheet, you ONLY fill in the information for the part of your house that was NOT your primary residence

MyVirtualCPA :

so the gain attributed to the period that it was a rental

MyVirtualCPA :

I would highly recommend that you get a NY tax preparer to assist you with this, as you will need to calculate what portion is attributable to the period that it was a home, vs rental

Customer:

Ah. I'll have to find one. That'll be tricky. It's a four-bedroom house, and I lived in half the house and rented the other half out for the first five years, and then rented the whole house out for two years, and it's been vacant another six months.

MyVirtualCPA :

Yes, you should have assistance with this because it will be VERY tricky

Customer:

Will that effect the 250-500K exemption?

MyVirtualCPA :

No, not for the portion that is attributed to your primary residence

MyVirtualCPA :

you will have to pay tax on the depreciation recapture though so it's not like there will be zero tax on this

Customer:

But if the home improvements totaled more than the depreciation, will they cancel out?

MyVirtualCPA :

If there is a loss on the sale then there is no tax

MyVirtualCPA :

Your accountant would be able to lay it all out there for you. It sounds like you have a tricky situation

Customer:

Dang.

MyVirtualCPA :

But, if there's gain you will have depreciation recapture

MyVirtualCPA :

but on the gain that is not depreciation recapture, then that will be excluded

Customer:

I guess what I'm wondering is, if I have a 500K exemption, but I rented the house out 50% of the time, would it only be a 250K deduction?

MyVirtualCPA :

No

Customer:

Phew.

Customer:

That's good news.

MyVirtualCPA :

The exemption applies to the entire property, but you will still have depreciation recapture

Customer:

Yep, I've totaled all that up from my past eight years of taxes. So far it looks like my closing costs run about 85K, my improvements are about 68K, and my depreciation is about 56K, so I think I should be okay. The house is selling at a 425K profit, so I should be under the line.

MyVirtualCPA :

That's good

MyVirtualCPA :

Is there anything else that I can assist you with today?

Customer:

I think so. Just one more thing, I couldn't find on the IT-2663 where it says that it's not needed if the sale is for a primary residence. Where does it say that?

MyVirtualCPA :

It's on the instructions

MyVirtualCPA :

Which is a separate file

MyVirtualCPA :

http://www.tax.ny.gov/pdf/2013/inc/it2663i_2013.pdf

MyVirtualCPA :

Is there anything else you need assistance with today

Customer:

Ah, sorry. I saw those instructions, but I couldn't find any reference to "primary" when I searched it.

MyVirtualCPA :

It's called principal residence

MyVirtualCPA :

in the instructions

Customer:

Cool, thanks!

MyVirtualCPA :

You're welcome.

MyVirtualCPA :

When satisfied with our communication, please take a moment to rate my response as "excellent" so that I may receive credit for assisting you today.

Customer:

I think that clears up my questions.

Customer:

Thanks a lot!

MyVirtualCPA :

You're certainly welcome

MyVirtualCPA :

Please don't forget to rate as "excellent" so that I may receive credit for assisting you today

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
Verified
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Megan C
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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