Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev Thread | Next Thread
Author: NavenJohnson Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120809  
Subject: Residence Gain Exclusion Date: 9/15/2003 9:20 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I've lived in my apartment for 15 years and just purchased it in February when it went co-op. It has appreciated in value over the last several months & I now want to purchase another residence. My question is: do the years I rented the place count as part of my 2 years residency to exclude the gain?

If not, is the profit considered short-term capital gain?

Also, if I wait until February to sell, will it be considered long-term capital gain?

Well fools, any ideas?

Thanks for your help.
Print the post Back To Top
Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66889 of 120809
Subject: Re: Residence Gain Exclusion Date: 9/15/2003 11:57 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I've lived in my apartment for 15 years and just purchased it in February when it went co-op. It has appreciated in value over the last several months & I now want to purchase another residence. My question is: do the years I rented the place count as part of my 2 years residency to exclude the gain?

There are two tests you must pass to exclude your gain: ownership and use. You clearly pass the use test, since you've lived in the place for two of the last 5 years. You do not pass the ownership test, however; you've only owned your co-op for 6 months. So - you can't exclude the gain...

If not, is the profit considered short-term capital gain?

Yes, it'll be taxed as a short-term gain, since you've owned it for less than a year.

Also, if I wait until February to sell, will it be considered long-term capital gain?

And yes, if you wait until February, you can make it a long-term gain. If you can wait another year beyond that, you'll then meet the two-year ownership test and you'll be able to exclude up to $250K in gain. See IRS Pub 523 for the rules on selling your home, here: http://www.irs.gov/pub/irs-pdf/p523.pdf

Lorenzo

Print the post Back To Top
Author: Adenovir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66943 of 120809
Subject: Re: Residence Gain Exclusion Date: 9/21/2003 10:48 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
If you plan on rolling the gain over into a new residence, then I don't believe that you will owe any tax on the gain right away; you defer the gain by incorporating it into the cost basis of your new house.

Example:

cost of 1st house: 50,000
sale price: 100,000
capital gain 50,000

purchase price of second house: 200,0000
capital gain rollover adjustment: 50,000
cost basis of second house: 150,000


This is how my CPA handled the sale of our 1st house and the adjusted cost basis of our current house. I'm no expert, so you should run this by a professional.

Adenovir

Print the post Back To Top
Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66945 of 120809
Subject: Re: Residence Gain Exclusion Date: 9/21/2003 11:00 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
If you plan on rolling the gain over into a new residence, then I don't believe that you will owe any tax on the gain right away; you defer the gain by incorporating it into the cost basis of your new house.

Example:

cost of 1st house: 50,000
sale price: 100,000
capital gain 50,000

purchase price of second house: 200,0000
capital gain rollover adjustment: 50,000
cost basis of second house: 150,000


This is how my CPA handled the sale of our 1st house and the adjusted cost basis of our current house. I'm no expert, so you should run this by a professional.


This is completely wrong. I hope you sold your last house before May 7, 1997, (or later in 1997 under certain conditions) because that's when the tax law changed with regard to sales of primary residences.

The current law allows you to exclude up to $250K of gain ($500 MFJ) if you have both lived in and owned the property for 2 out of the last 5 years. There is no requirement to buy another property.

Ira

Print the post Back To Top
Author: Adenovir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66949 of 120809
Subject: Re: Residence Gain Exclusion Date: 9/21/2003 12:47 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Can you use this exclusion with each qualifying home sale, or only once in a lifetime? Also, in the OP's case, couldn't they still use this method since they don't qualify for the exclusion based on length of ownership?

Adenovir

Print the post Back To Top
Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66952 of 120809
Subject: Re: Residence Gain Exclusion Date: 9/21/2003 3:08 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Can you use this exclusion with each qualifying home sale, or only once in a lifetime?

You can use the $250K exclusion multiple times, but you can't use it more often than once every two years.

Also, in the OP's case, couldn't they still use this method since they don't qualify for the exclusion based on length of ownership?

No. As irasmilo said, the law changed in the late 90s. It used to be that you could defer tax on your gain by rolling it into the purchase of a new residence that cost at least as much as the old one. That provision isn't there any more. As I recall, the OP purchased a co-op apartment in February. She has lived in the place for some 15 years, but has owned it for only 6 months. If she sells it now, she has a short term capital gain. If she waits for another 6 months or so, it'll be a long term gain. And if she can wait another year beyond that, she will satisfy the 2-year ownership requirement and be able to exclude all the gain (well, up to $250K). Those are her three choices.

Lorenzo

Print the post Back To Top
Author: Adenovir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66953 of 120809
Subject: Re: Residence Gain Exclusion Date: 9/21/2003 3:31 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thanks for the clarification Lorenzo, I'll have to sit down with my FIL who is also my CPA and straighten this out.

Adenovir

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev Thread | Next Thread
Advertisement