Home sale strategy

[farmerEd]

Just thinking out loud here....and need some better facts.

My house, 100% paid for, I could likely sell for about $1M+ which would give me about 650Kin capital gains....

If I sell I'd like to by two houses to replace the one...one in a cheaper location, i.e. a rural farming community...maybe buy a house for $250K. I'd also like to buy another house in the Carribean and spend upto 4 months per year there...this would probably cost 500-600K.

I know you only owe cap gain tax on your house when you don't roll the profit into another place...so if I took the "profit" from the house and bought the vacation place, and the original investment part (i.e. what I paid for the house in the first place) and bought the new farm...could I avoid most of the taxes?

Any obvious flaws in this plan?

[burch64]

If you are married there is no cap gain on your home up to 500K if you have lived there 2 of the last 5 years.

You can no longer roll your cap gains into a more expensive home to save cap gain.

Jim

[Jay_Gatsby]

Originally Posted by burch64

If you are married there is no cap gain on your home up to 500K if you have lived there 2 of the last 5 years.

You can no longer roll your cap gains into a more expensive home to save cap gain.

Jim

I wonder how this is going to affect the Boomers who are looking to retire in the next few years and have paid-off houses in areas like Southern/Northern California, New York and D.C.

[farmerEd]

>>You can no longer roll your cap gains into a more expensive home to save cap gain.

Now that I *didn't* know....so its not a once-in-a-lifetime exclusion?

[burch64]

You can sell your home every 2 years and avoid cap gain subject to the 500k limitation.

If you have lived in your home at least 2 years and sell it you do not even have to declare the sale on your income tax forms.

Jim

[cute fuzzy bunny]

Originally Posted by Jay_Gatsby

I wonder how this is going to affect the Boomers who are looking to retire in the next few years and have paid-off houses in areas like Southern/Northern California, New York and D.C.

They're going to pay capital gains on the excess. Which isnt exactly a death sentence for someone making >500k in gains on a principal residence sale!

[ladelfina]

Make sure you take into account the cost of any major improvements you did after purchase.. that will bring the CG down.

[MJ]

Boy am I lucky, because I was such a lousy investor, I have accumulated several lifetime of capital losses that I will finally be able to use up when I sell my house at the end of this month. Now I know I had winning strategy when I lost all that money. I get to get 15% back. Wish I had lost more.
It only hurts when I laugh and I laugh a lot.

MJ

[cute fuzzy bunny]

Yep, the following two thoughts:

"Nasdaq 3000...thats probably as far as it'll drop, more or less.."

and

"Wow, Nasdaq 2000 is amazingly cheap, I should buy more...the bounce cant be that far off".

Resulted in a very helpful situation with regards to future capital gains...for the last 5 years...and for about 5-7 more...

[HFWR]

Used the last of mine on the 2004 return.