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We bought a home about 9 months ago -- now, we are plaqnning to sell it (at a profit), and buy a bigger home.

So what does this mean for our taxes?


Plan to pay tax on your profit.

Are the pre-97 rules on deferring gains on houses still available as an elective, or do those strictly apply only to property disposed of before May 7, 97?

There is no deferral allowed on the sale of a residence. The pre-1997 rules are history. Instead you can exclude up to $500,000 of profit on the sale of your primary residence if you own and occupy it for 2 out of 5 years, which you will not. There is also a partial exclusion if you meet certain conditions, ie., you sold your house because of a change in health, a change of employment or other special circumstances allowed by the IRS (none have been announced yet).

What is the smart thing to do? Any approaches to run up the cost basis, run down the sale price that can be used, or otherwise roll gains into the new property?

You can run up the cost basis by making improvements, but they will also increase your sales price. There is no way to roll gains into a new property.

One thing may be to get the buyer to agree to close in 3 months -- but there is also some interest in just getting it over with, having the deal closed and put the money in the new house...

Delaying would be very useful, as it will convert your gain from short-term to long-term. This should save you significantly on taxes.

You probably should review a copy of IRS Pub. 523, Selling Your House, before you commit to anything.

Ira
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