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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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If a homeowner sells the town home she owns, owned it

Customer Question

If a homeowner sells the town home she owns, owned it for 18 months, buys another single family home. She sells the town home for $50k more than she paid. Will she owe taxes on the $50k.
This takes place in the Atlanta, GA market.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

If the taxpayers sell the property - she may realize a gain or loss depending on circumstances.
Fist step - to verify the basis.
When the property was purchased - the basis is the original purchase price.
Then - it is adjusted by purchase expenses and improvement expenses. - that is how we come up with the adjusted basis.
The gain is calculated as
(selling price) MINUS (adjusted basis) MINUS (selling expenses)

That gain is generally added to other taxable income.
However when the taxpayer owned and used the property as a primary residence at least two out of last five years - section 121 allows to exclude the gain from taxable income - up to $250k for a single taxpayer.
So based on your information - the homeowner woudl not qualify for that exclusion.

However - there are some additional exceptions from " two out of last five" tests.
If you don't meet the eligibility test, you may still qualify for partial exclusion if you moved because of work, health, or an unforeseeable event.

You can qualify either by meeting a set of standard requirements (the “safe harbor” provisions) or by showing enough facts and circumstances to validate your claim.

see page 4 for details

https://www.irs.gov/pub/irs-pdf/p523.pdf

If neither applies to your situation - the gain will be taxable, but because teh property was owned more than a year - it will be taxed at reduced long term capital gain rate - so depending on total taxable income - it might be taxed either at zero percent or at 15%.

Let me know if you need any clarification or help with determination.

Expert:  Lev replied 1 year ago.

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