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Old 05-25-2013, 02:30 PM   #21
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Originally Posted by calmloki View Post
bE ADVISED: hARLEY IS CORRECT.

See IRS pub 523, worksheet two, especially lines 8-12. In fact DonHeff, pub 523 should become your light reading for a while. Big changes took place in 2009. dammit. No more the landlord two year hop for tax free gain. dammit.
I thought he would be right. It just didn't make sense to me that living there a couple years would 'reclaim' the years that you didn't live there. But putting 'taxes' and 'making sense' in the same thought is not a good guide, might even be a contrary indicator

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Originally Posted by JOHNNIE36 View Post
Something doesn't ring true here. I don't think your cost basis goes all the way back to 1977. I would think house #1 that sold in 1981 is handled on it's own merits. IOW, if you didn't owe any taxes on house #1, then it's over and done and you start again in 1981. House #2 is sold in 1992 and any tax owed is paid then. You start over again with this house. If you make over $500k on the sale of this house (as a couple), taxes would be due. Now you want to know the cost basis of that house. It would have nothing to do with what you did in 1977.

Maybe someone else can clarify this.
I'll be interested to hear from others also to confirm or correct, but I do believe this is how it works. It's not that I 'didn't owe taxes' on the first two houses ( I had a gain), it is more like those taxes were deferred, and rolled up into the next house, to be collected when you sell, but do not re-purchase a home of equal or greater value. That is when the taxes came due. And then it changed in 1997, but you still need to capture that gain from the prior time frame, if it wasn't captured then.

This is maybe not technically correct, but it looks to me that they structured it as a 'like-kind exchange' transfer, but for home-owners rather than businesses. Here, wiki says it better than I can:

Quote:
A like-kind exchange under United States tax law is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset. A like-kind exchange can involve the exchange of one business for another business, one real estate investment property for another real estate investment property, livestock for qualifying livestock, and exchanges of other qualifying assets.
-ERD50
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Old 05-25-2013, 03:17 PM   #22
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Thanks for the reference. IRS Pub 523 appears quite comprehensive. But it doesn't look like anything new to me. I can still live in the VA home for two out of the five years preceding sale and claim it as my main home thus garnering up to the whole $500K exclusion from CGs. My problem is living there. I like to go down every other weekend or so and for some more extended periods but I don't want to stay there most of the time. I do want to include as much as possible in my cost basis when (and if) I sell. The publication is helpful on that topic.
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Old 05-25-2013, 03:38 PM   #23
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Originally Posted by donheff View Post
Thanks for the reference. IRS Pub 523 appears quite comprehensive. But it doesn't look like anything new to me. I can still live in the VA home for two out of the five years preceding sale and claim it as my main home thus garnering up to the whole $500K exclusion from CGs. My problem is living there. I like to go down every other weekend or so and for some more extended periods but I don't want to stay there most of the time. I do want to include as much as possible in my cost basis when (and if) I sell. The publication is helpful on that topic.
Again, reference lines 8-12 of worksheet two. You get to shelter a fraction of your gain. Plainly put, if you bought on 1/1/2009 for $100k, lived there for two years, and sold 1/1/2014 for $200k ($100k profit) you could shelter $40k and pay tax on $60K. Try plugging the above numbers into the worksheet and check me.
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Old 05-25-2013, 05:26 PM   #24
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Again, reference lines 8-12 of worksheet two. You get to shelter a fraction of your gain. Plainly put, if you bought on 1/1/2009 for $100k, lived there for two years, and sold 1/1/2014 for $200k ($100k profit) you could shelter $40k and pay tax on $60K. Try plugging the above numbers into the worksheet and check me.
Thanks Camloki, I see. looks like I couldn't get much of a break by moving in for two years. Even if I did it today, by the time I sold in 2 years I would only get something like 1/3 of the max (2 out of 6 years going back to 2009). If I sold in ten years that would drop to something like 1/7. I thought maybe something was wrong since the worksheet didn't seem to fit in with the maximum exclusion part in the body of the publication but I Googled the issue and found this easy to understand description on nolo.com:

Reduced Exclusion for Second Home Also Used as Primary Home

As of January 2009, new tax rules require that, if you sell a home that you sometimes used as a vacation or rental property and sometimes as your primary residence, you're eligible for only that portion of the capital gains exclusion that corresponds to the amount of time you actually lived there as your primary residence. (The rest of the time is called "non-qualifying use.") Note that the calculation is made over more than a mere five-year period -- it applies right back to January of 2009. What's more, if, during the five years before the sale, you never actually made the home your primary residence, you're likely disqualified from using the exclusion. (You won't be surprised to hear that this new rule was meant to generate additional tax revenue, to offset some other tax cuts.)
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Old 05-25-2013, 06:18 PM   #25
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Note that if the sales proceeds are under 250k the IRS does not recieve any notification, and you no longer need to tell them anything. One of the forms at closing has this as an option if the proceeds are less than 250k. So if in the middle of the country in many cases record keeping is not needed since you will be under the limit (In Indianpolis for example the median home is less that 170k) now on the coasts the answer is different. The median is about the same in Houston BTW.
Please, could you give a reference for this?

Ha
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Old 05-25-2013, 06:48 PM   #26
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Please, could you give a reference for this?

Ha
Note that is for a primary residence for more than 5 years. It is what happened when I sold my house in Houston in 2005 for 96k. Since there is a 250 k exemption, they have a form that essentially says you got less than 250k and because its a primary residence for 5 years no need to bother the IRS. Here is a link to the IRS document: Instructions for Form 1099-S (2013)
At the detailed quote:
  1. Sale or exchange of a residence (including stock in a cooperative housing corporation) for $250,000 or less if you received an acceptable written assurance (certification) from the seller that such residence is the principal residence (within the meaning of section 121) of the seller and the full amount of the gain on such sale is excludable from gross income under section 121. If the certification includes an assurance that the seller is married, the preceding sentence shall be applied by substituting $500,000 for $250,000. If there are joint sellers, you must obtain a certification from each seller (whether married or not) or file Form 1099-S for any seller who does not make the certification. The certification must be signed by each seller under penalties of perjury.
    A sample certification format can be found in Revenue Procedure 2007-12, 2007-4 I.R.B. 354, available at www.irs.gov/irb/2007-04_IRB/ar09.html.


    Rev. Proc. 2007-12 does not reflect changes made by Public Law 110-289, section 3092(a), which added section 121(b)(4 [sic (5)]). The sample certification included in Rev. Proc. 2007-12 does not include an assurance that there has been no period of nonqualified use (as that term is defined in section 121(b)(4 [sic (5)])(C)) after December 31, 2008. Also, the sample certification included in Rev. Proc. 2007-12 does not include an assurance, as required by section 6045(e)(5)(A)(iii), that the full amount of the gain from the sale is excludable under section 121. You may get the certification any time on or before February 15 of the year after the year of sale. You may rely on the certification and not file or furnish Form 1099-S unless you know that any assurance on the certification is incorrect.
    You must keep the certification for 4 years after the year of sale. You may keep the certification on paper, microfilm, microfiche, or in an electronic storage system.
    You are not required to obtain the certification. However, if you do not obtain it, you must file and furnish Form 1099-S.
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Old 05-25-2013, 07:41 PM   #27
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....I'll be interested to hear from others also to confirm or correct, but I do believe this is how it works. It's not that I 'didn't owe taxes' on the first two houses ( I had a gain), it is more like those taxes were deferred, and rolled up into the next house, to be collected when you sell, but do not re-purchase a home of equal or greater value. That is when the taxes came due. And then it changed in 1997, but you still need to capture that gain from the prior time frame, if it wasn't captured then.....
Let's say this is your third house and the houses cost $100, $200 and $300 and the proceeds from the sale were of the first two houses were $125 and $235, respectively.

The basis would be $300, as follows:

$100 paid for first house
+$25 deferred gain on sale of first house
+$75 additional investment to acquire second house
+$35 deferred gain on second house
+$65 additional investment to acquire third house

+ whatever was paid for improvements for the third house. Improvements paid for prior homes would simply reduce the deferred gain. Above assumes that no house was sold at a loss and all sales were while the rollover rule was in effect.

So in essence, if you sell your last house for less than your cost basis +$500k, then no tax on the gain assuming it is your principal residence.
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Old 05-26-2013, 06:44 AM   #28
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don't deferred gains increase future gains? (or equivalently, decrease basis?)
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Old 05-26-2013, 08:30 AM   #29
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Let's say this is your third house and the houses cost $100, $200 and $300 and the proceeds from the sale were of the first two houses were $125 and $235, respectively.

The cost basis would be $300, as follows:

$100 paid for first house
+$25 deferred gain on sale of first house
+$75 additional investment to acquire second house
+$35 deferred gain on second house
+$65 additional investment to acquire third house

+ whatever was paid for improvements for the third house. Improvements paid for prior homes would simply reduce the deferred gain. Above assumes that no house was sold at a loss and all sales were while the rollover rule was in effect.

So in essence, if you sell your last house for less than your cost basis +$500k, then no tax on the gain assuming it is your principal residence.
Sorry, kaneohe is right, I had it wrong (FWIW it has been a long time since I dealt with this). The cost basis should NOT include the deferred gains pieces, but would include the original cost of the first house and the additional investment in subsequent houses.

So the basis would be $240, as follows:

$100 paid for first house
+$75 additional investment to acquire second house
+$65 additional investment to acquire third house

So if the third house is then sold for $500, then gain would be $260, as follows:

+$25 deferred gain on sale of first house ($125 sp - $100 paid)
+$35 deferred gain on second house ($235 sp -$200 paid)
+$200 gain on third house ($500 sp - $300 paid)
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Old 05-26-2013, 12:11 PM   #30
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Originally Posted by meierlde View Post
Note that is for a primary residence for more than 5 years. It is what happened when I sold my house in Houston in 2005 for 96k. Since there is a 250 k exemption, they have a form that essentially says you got less than 250k and because its a primary residence for 5 years no need to bother the IRS. Here is a link to the IRS document: Instructions for Form 1099-S (2013)
At the detailed quote:
  1. Sale or exchange of a residence (including stock in a cooperative housing corporation) for $250,000 or less if you received an acceptable written assurance (certification) from the seller that such residence is the principal residence (within the meaning of section 121) of the seller and the full amount of the gain on such sale is excludable from gross income under section 121. If the certification includes an assurance that the seller is married, the preceding sentence shall be applied by substituting $500,000 for $250,000. If there are joint sellers, you must obtain a certification from each seller (whether married or not) or file Form 1099-S for any seller who does not make the certification. The certification must be signed by each seller under penalties of perjury.
    A sample certification format can be found in Revenue Procedure 2007-12, 2007-4 I.R.B. 354, available at www.irs.gov/irb/2007-04_IRB/ar09.html.


    Rev. Proc. 2007-12 does not reflect changes made by Public Law 110-289, section 3092(a), which added section 121(b)(4 [sic (5)]). The sample certification included in Rev. Proc. 2007-12 does not include an assurance that there has been no period of nonqualified use (as that term is defined in section 121(b)(4 [sic (5)])(C)) after December 31, 2008. Also, the sample certification included in Rev. Proc. 2007-12 does not include an assurance, as required by section 6045(e)(5)(A)(iii), that the full amount of the gain from the sale is excludable under section 121. You may get the certification any time on or before February 15 of the year after the year of sale. You may rely on the certification and not file or furnish Form 1099-S unless you know that any assurance on the certification is incorrect.
    You must keep the certification for 4 years after the year of sale. You may keep the certification on paper, microfilm, microfiche, or in an electronic storage system.
    You are not required to obtain the certification. However, if you do not obtain it, you must file and furnish Form 1099-S.
Thank you for very complete summary.

Ha
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Old 05-28-2013, 09:45 PM   #31
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bE ADVISED: hARLEY IS CORRECT.
Just wanted to see this again. It's a rare occurrence.
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