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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29781
Experience:  Taxes, Immigration, Labor Relations
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My husband and I sold our home in San Francisco in February

Customer Question

My husband and I sold our home in San Francisco in February of this year for $1,400,000. After fees, paying off mortgages, and real estate commissions, we received a payment of $1,100,000. My husband bought the house in 1982 for $82,000. We will be taking the $500,000 deduction for sale of a home for a person who is over 55. My husband is 68. We also have another $100,000 in deductions for improvements and repairs to the house over the years. My husband receives Social Security in the amount of $1400 after taxes are deducted. He had been withdrawing $5200 each month, before taxes, from his retirement account but discontinued that at the end of February. I stopped working when he retired in 2007 and have had no income for the past six years. Our total income for this year will be about $28,000 this year. We need to know if we will be liable to pay capital gains taxes or if we will be exempt in a lower income bracket. Also, we need to know if the law still applies regarding rolling money from the sale of one home over to the purchase of another one. We are planning on buying another house but need to know if we will have to pay capital gains taxes, and approximately how much, before we move forward with that. Thanks very much for your help.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome top our site.The first step is to calculate the capital gain realized on that sale.The gain is calculated as (selling price) MINUS (adjusted basis) The basis is your original purchase price $82,000It should be adjusted for improvement expenses, purchase and sale expenses, Realtor's fees, etc.So far based on your information - your adjusted basis is $182,000The gain is calculated $1,400,000(selling price) MINIS $182,000 (adjusted basis) = $1,218,000If you file a joint tax return - under section 121 you are eligible to exclude $500,000 from taxable gainThat will leave you with $718,000 of taxable gain - that will be taxed at reduced long term capital gain tax rates.Based on your information - your estimated federal tax liability is about $140,000What we need to do - verify your actual selling expenses - that woudl be added to your basis and might reduce your possible tax liability significantly. You do qualify for zero percent tax on a part of long term capital gain - that otherwise woudl be taxed at 15% or below - but that covers only a small part of your taxable gain - but there is no exemption from the tax besides $500,000 which we already mentioned above. Let me know if you need any clarification this matter.
Expert:  Lev replied 2 years ago.
Please be aware that estimations above are fro federal income tax purposes only.As you are living in California - there will be additional California income tax.Let me know if you need any help with reporting that sale transaction.