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DAT Financial & Tax ServiceReal Estate and MortgagesHome Sales, Exclusion of Gain, Unforeseen Circumstances and Surviving SpousesPaying capital gains tax on a home sale is something that most homeowners don't have to worry about since up to $500,000 in profits from the sale of a principal residence are generally exempt from capital gains tax ($250,000 for unmarried individuals.) You also don't need to buy a replacement home. You can take this write-off once every two years and you must own and live in the home two of the last five years. Starting in 2008, surviving spouses may exclude up to $500,000 in capital gain if a home sale occurs no later than two years after their spouse dies. If you don't meet this rule and must sell due to an unforeseen circumstance, you may be eligible for a reduced tax-free exclusion, which usually makes your home sale profit completely tax-free. I can evaluate your situation to determine if it meets an IRS allowed exception, which could save you thousands on your taxes. Feel free to call or e-mail to discuss before you consider or complete a home sale. Vacation Homeowners Lose Tax BreaksStarting in 2009, owners of vacation or second homes will lose some of the tax benefits of being able to convert their property to a primary residence, sell it and benefit from the capital gains exclusion afforded a primary home. To gain the primary home gain exclusion benefits of up to $500,000 per joint return or $250,000 for singles, the taxpayer could move in and convert the vacation home to a primary home for at least two years. Under the new rules, the gain exclusion will be prorated by the amount of time the owner actually uses the property as a primary residence. For example, if you owned the vacation home for 10 years and during the last two years, you moved in, you would only exclude two-tenths of the gain on your return. Home Sale Gain Exclusion and Rules for Like-Kind ExchangesNormally, gain of up to $250,000 ($500,000 if joint filers) may be excluded on the sale of a principal residence if the taxpayer owned and used the home as a principal residence for two out of the last five years ending on the date of sale. However, when the principal residence is acquired in a like-kind exchange, the ownership requirement increases to five years on homes sold after October 22, 2004. The home still needs to be used as the principal residence for only two years out of the last five. Foreclosure/Short Sales and 1099-c or 1099-aRelief from mortgage debt forgiveness: If you receive a 1099-c (cancellation of debt) for a home sale through 2012, you may qualify to exclude that amount from income, if the loan was used to buy the home and it was your primary residence. California offers partial conformity (for tax years 2007-2008 only) and complicates the reporting. If you were insolvent, you may also qualify. Please call my office to discuss your eligibility. The 1099-c or 1099-a issued by the lender often has mistakes, so we may need to dig deeper to resolve these issues in your favor, if possible. Selling California Investment Real EstateIf you sell investment real estate (or lived in your home less than two years), the state of California wants some of the tax that will be owed on the profit at the time of sale, rather than waiting for you to complete and send in your tax return. The state has imposed strict new withholding requirements and escrow companies must withhold 3 1/3 per cent of the sales price of any real estate sold that is over $100,000, not a personal residence and not a 1031 exchange, 1033 involuntary conversion or a foreclosure. The only exception is if the seller signs a form stating that there is a loss on the sale. If there is any gain expected on the sale, the amount of withholding must equal 3 1/3 per cent of the sales price OR 9.3 per cent of the estimated taxable gain. |
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Dale A. Tartakoff |
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