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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3170
Experience:  IRS licensed Enrolled Agent and tax instructor
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I have a house in Florida which I am trying to sell. I will

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I have a house in Florida which I am trying to sell. I will probably make about $25K profit on it. What would I have to do as regards ***** *****? Is there any way of making it as small as possible?
Can we count costs for fixing it up with sale?

Hi. My name is ***** ***** I will be happy to help you.

If you own the house and you used it as your personal residence for at least two out of five years prior the sale, you may qualify for $250K ($500K if married filing jointly) capital gains exclusion. If this doesn't apply to you, here's how capital gains are calculated: Sale proceeds (how much the house was sold for) minus purchase price, minus major improvements and expenses of sale (including real estate commission). You cannot change purchase price or sales proceeds but you can make sure that you account for all improvements and expenses you paid to sale it to minimize your capital gains.

Capital gains are usually taxed at a lower tax rate than ordinary income, usually at 15%, but depending on your other income it could be as low as 0% or as much as 20%.

If you give me your filing status and estimated total income for the year I can run a projection for you. You can also use one of the online calculator like this one to get a pretty good idea what to expect:

You are still offline. So if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.

Yes, you can (should) add the selling costs - getting ready to sell, painting, selling commissions etc. to the basis.
Capital gain = sales price MINUS basis
and Basis is purchase price + improvements + those selling costs
And Long-term gains and qualified dividends are taxed at ...
*0% if taxable income falls in the 10% or 15% marginal tax brackets
*15% if taxable income falls in the 25%, 28%, 33%, or 35% marginal tax brackets
*20% if taxable income falls in the 39.6% marginal tax bracket
So depending on your other household income for the year, you may have a zero tax or as high as 20% ... ON that gain (selling price minus basis).
But again, yes, you CAN add your selling costs (plus any improvements you made to the house) TO the purchase price to et to a higher basis, which will lower that taxable gain.
Let me know if you have questions ...
OH ... so sorry. I had this locked the whole time ... but apparently the lock slipped... again.
I'll opt out so you can rate Eva's excellent answer.
Customer: replied 2 years ago.

So I wonder how they would determine if you lived at house for past 2 years? Because we have rented the house off and on for past 4 years but there was time I lived back over there because of work.

For the exclusion you will have to count days you physically used the property as your primary residence. If the property was available for rent and advertised as such it is considered as being rented event though you didn't have any rental income. You will use your move in and move out dates to calculate your 2 years use of the property.
And you will have to account for the depreciation taken during the period the property is rented. You will have to reduce your basis by the depreciation taken and this will increase your capital gains. So part of the capital gains will be classified as depreciation recapture tax at 25% and the rest as ordinary capital gains taxed depending on your tax bracket.
Customer: replied 2 years ago.

So if I lived there since August which would make 10 months right now and lived there for at least 14 before the 5 previous year window then would that count as the exclusion? And if so is there anything we need to fill out or just leave it?

Let's say you will close on the home at the end of May. In order to qualify for the exclusion you will need 24 month between May 31, 2000 and May 31 2015. If you used it as your personal residence from August 2014 until the close, you have 10 month. If you used it from May 2000 until at least September 2011 (14 month) as your personal resident before you started renting it, you can use the exclusion. 14 month before renting and 10 month after renting will give you your 24 month. Unfortunately because of the depreciation during the renting period you will have to file Schedule D and include all or some of the depreciation you took in your income: You will not be able to exclude the entire capital gains because of the non-qualified renting period and the depreciation.

There's another article about depreciation recapture provided by Lane, the agreeing expert:

Customer: replied 2 years ago.

We haven't taken any depreciation on the rental since we have rented it. We ourselves will have been out of the house for almost exactly 4 years this June. We have only rented it twice (each time for a one year period) since then. In between I have lived there also for about 26 months. I would have to break it down on calendar but pretty close.

So if we fit exclusion, do we do anything? Report it on taxes but mark exclusion?

If you lived there for 26 month, than yes, you can claim the exclusion. Unfortunately, when it comes to depreciation the rule is use it or loose it. Even if you didn't take it, you still need to account for.
Read here under Disposing of Depreciable Assets (bottom of the page):
"When depreciable property is sold or disposed of, depreciation that was allowed or allowable on that property must be taken into consideration. In other words, even if no depreciation deduction was taken, the net profit or loss on the disposition of the property must be computed as if depreciation was actually taken."
If you didn't take the depreciation you can amend the prior year returns (2012-2014) and add the depreciation. If you haven't filed your 2014 return yet, you might be able to file form 3115 to claim all the unclaimed depreciation on your 2014 tax return. Form 3115 has to be filed with the original return, not amended.
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3170
Experience: IRS licensed Enrolled Agent and tax instructor
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