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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121595  
Subject: Re: Capital Gains Tax/Selling a Home Date: 10/19/2005 11:25 AM
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My husband and I own a small home in CT which we bought from family for well below market value ($75K) 7 months ago.

You don't actually say so, but I'll assume that this has been your principal residence since you bought it.

The home appraised at $168K before we updated the kitchen, windows and other various and sundry items. We expect to sell for $200K, which would realize a profit of $125K before we pay the real estate agent commission and other related expenses.

Remember that major improvements add to your basis. See IRS Publication 551. Publication 523 has the details about the exclusion and calculating gain and the pro-rated exclusion.

We expect to sell around May of next year, which would put our length of ownership at 12 months; as you know, this is below the minimum of 24 months required for the $500K capital gains tax break for married couples.

I understand from reading the IRS regulations that if we move further than 50 miles away from our original location for employment we can get a modified tax break (we are planning on relocating to NH). Seems that with a modest profit we would be safe from paying capital gains tax.


If the sale is "due to" a change in employment, the law allows a pro-rated exemption (pro-rated by time). IRS has said that if the move meets the requirements for deducting moving expenses (see Publication 519), they will not question a pro-rated deduction. Check those requirements and let us know if this is a problem.

What are your thoughts?

Some follow-up questions: at what point in the selling/buying process does all this get calculated?


After closing.

Do we need to have a job secured in NH before being eligible for the tax break?

No, but. This is where you get back to us if Pub 519 shows a potential problem.

Is this a calculation solely for the lenders, or do the agents get involved? What other questions should I be asking??

Neither the lenders nor the agents have anything to do with this. Given what I've heard some (not all) agents say, don't go to them for tax advice.

Phil
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