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03/18/2007 03:56:00 PM · #1 |
I've had a home in my name for 11 years (quitclaim). Never lived in nor rented it. We're thinking of selling it this year and was wondering what the laws were on capital gains taxes in my situation. I know that since it is considered a long term investment they will be less than short term but can't find out exactly what to expect. I also understand that if I had lived in it for two years I would get a huge break but that doesn't apply here. Looking at around a $90,000 sale if that matters.
I know that I should seek advice from a CPA and I will. Just curious as to what anyone here may know.
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03/18/2007 04:03:28 PM · #2 |
The short version is you'll pay long-term capital gains rates on the difference between your proceeds from the sale, and your cost basis in the property. That is, you pay on your gain, not on the entire sale price.
You'll probably need to talk to a CPA for the long version.
~Terry
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03/18/2007 04:09:26 PM · #3 |
if you have lived there for more than two years you do not pay capital gains taxes on a profit under $250K
Originally posted by IRS:
You may be entitled to exclude gain from income if during the 5-year period ending on the date of the sale, you have:
* Owned the home for at least 2 years (the ownership test), and
* Lived in the home as your main home for at least 2 years (the use test).
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//www.irs.gov/publications/p523/index.html
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03/18/2007 04:10:44 PM · #4 |
Originally posted by muckpond:
if you have lived there for more than two years you do not pay capital gains taxes on a profit under $250K
Originally posted by IRS:
You may be entitled to exclude gain from income if during the 5-year period ending on the date of the sale, you have:
* Owned the home for at least 2 years (the ownership test), and
* Lived in the home as your main home for at least 2 years (the use test).
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//www.irs.gov/publications/p523/index.html |
But...
Originally posted by dudephil:
I also understand that if I had lived in it for two years I would get a huge break but that doesn't apply here. |
~Terry
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03/18/2007 04:43:14 PM · #5 |
Thanks guys. From what I've read it looks like you're right Terry. However, I can't find the exact percentage of what I'm going to have to pay. On most long term stock gains the rate is 15%, but I seem to recall real estate being different. All I can find online are the ways to avoid capital gains by living in it for 2 years. What I can't find is the rate for someone in my situation of owning it for ten years but never residing in it.
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03/18/2007 05:18:19 PM · #6 |
Originally posted by dudephil:
Thanks guys. From what I've read it looks like you're right Terry. However, I can't find the exact percentage of what I'm going to have to pay. On most long term stock gains the rate is 15%, but I seem to recall real estate being different. All I can find online are the ways to avoid capital gains by living in it for 2 years. What I can't find is the rate for someone in my situation of owning it for ten years but never residing in it. |
You could always call a local realtor and tell them you have a house you want to list and were wondering what the taxes would be......if they don't know there's always the option to call a lawyer. Chances are you'll need a lawyer to close the deal anyhoo so might as well start somewhere. |
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03/18/2007 05:20:41 PM · #7 |
That was the old rules. Now if you lived in it at least 2 of 5 years all gain is tax exempt. You can do this many times. The only rules as a one time exemption. You also need to check individual state laws, they differ from Ferd rules.
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Originally posted by muckpond:
if you have lived there for more than two years you do not pay capital gains taxes on a profit under $250K
Originally posted by IRS:
You may be entitled to exclude gain from income if during the 5-year period ending on the date of the sale, you have:
* Owned the home for at least 2 years (the ownership test), and
* Lived in the home as your main home for at least 2 years (the use test).
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//www.irs.gov/publications/p523/index.html |
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03/18/2007 05:54:59 PM · #8 |
According to my brother (CPA) the difference between sale price and purchase price is taxed at 5% if your income tax rate is in the 10% - 15%, otherwise it is taxed at 15%.
David
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03/18/2007 07:11:02 PM · #9 |
All, Please note that he said he has owned the home for 11 years and never lived in it or rented it during this time.
So who lived in it? Did you buy it originally?
It sounds like an investment where potentially you bought it for someone else but since you didn't live in it you don't get to take the tax free path here (which you only get to take once I think unless you roll the gain into another residence). The gain you make on this property probably gets taxed as a long term gain rate.
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03/18/2007 09:00:29 PM · #10 |
I know it's not relevant in this case, but there's a very important distinction being missed in the discussion of the "2 of 5 years" rule: it has to be a total of 2 years out of the 5 immediately before the sale. Not just any two years, not 2 out of every 5 year period.
That's how we sold our old house: we rented it for almost 3 years after we moved out, but since we'd lived in it for years 1 and 2 of the 5 preceding the sale, we qualified for the exemption.
Speaking of which, it's $250K for a single person and $500K for a married couple.
Now, in the actual case at hand, one thing you'll need to ask about is depreciation. We owned a condo for 12 years after we moved out, and rented it the entire time. We took depreciation each year, and now that total amount gets added back into the gain.
If you rented, you may be forced to add depreciation into your gain even if you didn't take it at the time. I don't understand that reasoning, but I've seen the warning in more than one place.
All of this is definitely stuff to discuss with a CPA or a tax attorney!
Message edited by author 2007-03-18 21:23:52.
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03/19/2007 10:37:47 PM · #11 |
| Dayum Phil...90,000 grand?! Where abouts is the property, down in Monroe county or up in Campbell county? The houses around where we are are absolutely ridiculous as far as price goes...loads of $400,000 grand McMansions sitting around, some have even been for sale for years...goofy realtors. |
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