Message Font: Serif | Sans-Serif
No. of Recommendations: 0
My husband and I bought our house on Feb 1, 2000. The subdivison we are in has really taken off. Our builder can build us a bigger house on a better lot for approximately the same price. We should make about
$110,000 profit on our current home. We plan to move into our new house in May, 2001. We would have owned and lived in our house for about 485 days. Can we exclude the $110,000 capital gains we made on the first house? I have seen things about having to live in your house for two of the past five years. I understand about the two years, but what does five years have to do with anything?

The 5 years gives added flexibility. You need not have owned and lived in the house for the 2 years immediately preceding the sale, just for a total of 2 years within the 5 year period preceding the sale. You don't qualify, having lived in the house for less than 2 years total (prospectively at the planned time of sale).

Proration of the exclusion for periods less than 2 years is only available if the move is due to a change in employment, health, or unspecified "unforeseen circumstances." I don't believe Congress had "a better house and a windfall gain" in mind when they wrote "unforeseen circumstances."

If you're intent on having the new home but not paying tax on your gain, you could buy the new one, rent it out until you satisfy the 2 years in the old one, and then sell the old one and move into the new one. When you sell the new one some day you'd owe some depreciation recapture, but it wouldn't be for a long period of time.

Frankly I'm a little confused. Barely 6 months ago you wanted to live in your current home. While I appreciate the lure of something for nothing, I can't figure out why you want to move. Maybe it's just that I abhor the moving process.

Phil Marti
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.