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<<To clarify my situation: We bought the first house (in Utah, 1992) for $125000, sold it for $179000
(in May 1996), put $10000 in improvements, with a realitor fee of $8500. I figure that
($179000-$125000-$10000-$8000=$36000) our taxable capital gain is $36000. I bought another
house in Miss. for $132000 in Apr, 1997. Can I sell a couple loser stocks to offset some of the
capital gains?>>

As KAT points out, you may already have some problems. If the sale took place in 1996, that is when the ultimate GAIN must be reported. So, in your situation, you may have to go back and amend your 1996 return in order to report the appropriate gain on the sale. You must remember that the old 24 month "reinvestment" rule was the time period required to purchase a new principal residence...NOT the time required to report the gain. As KAT points out, the 1996 return is the key.

Under the OLD home rollover rules, you might have been able to slither out of this sutation by buying yet a BRAND NEW home within your 24 month period. Under the old rules, the "interim" home (your current Miss. home) could be ignored for the "rollover" period.

And the new home sale rules may provide you with an exception that you MAY be able to use in order to solve your problems. But the review of this entire situation and the interpretations will be based upon your individual situation, and will require the assistance of a qualified tax pro.

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