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Personal home sale tax free gains
Old 02-09-2019, 01:37 AM   #1
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Personal home sale tax free gains

Most readers here know this, but I have met two retirees recently who were not aware of the tax free proceeds available from selling your personal residence. Both thought the pre-1997 rules (must buy a new, more expensive home to "roll over" the capital gains), was still in effect.

You no longer have to buy a replacement home for tax free benefits.

The current "rules" (in a nutshell) are that the home must have been your personal residence for 2 of the last 5 years, and the tax free gains are capped at $250k for singles and $500k for married couples. The following link is a concise explanation, and also covers some little known exceptions.

http://www.nolo.com/legal-encycloped...ome-29901.html
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Old 02-09-2019, 06:38 AM   #2
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Yup. A lot of people out there that aren't paying attention.
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Old 02-09-2019, 06:46 AM   #3
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I just closed on a house last June, and we were well under that 500K cap. In fact, if you are under the cap, it doesn't even get reported to the IRS, no 1099...I specifically asked because I wondered if it would be one of those items that doesn't raise your tax bill, but does get reported where it becomes a consideration for the ACA MAGI number, but it does not.
According to the lawyer who did my closing.
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Old 02-09-2019, 06:51 AM   #4
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Quote:
Originally Posted by HadEnuff View Post
I just closed on a house last June, and we were well under that 500K cap. In fact, if you are under the cap, it doesn't even get reported to the IRS, no 1099...I specifically asked because I wondered if it would be one of those items that doesn't raise your tax bill, but does get reported where it becomes a consideration for the ACA MAGI number, but it does not.
According to the lawyer who did my closing.
Do they ask your basis so that they know whether you are under or over the cap? It seems to me like they would either always report the sale number, or never, and let you figure out your actual profit and decide whether to report it or not.
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Old 02-09-2019, 06:58 AM   #5
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No, because it the proceeds from the sale are under the cap then the gain on sale has to be under the cap assuming a basis of zero.

If the sales proceeds are over the cap then it gets reported.
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Old 02-09-2019, 07:02 AM   #6
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OK, so any house that sells over $500K ($250K if sold by a single) is reported?
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Old 02-09-2019, 07:03 AM   #7
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That is my understanding/experience.
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Old 02-09-2019, 08:03 AM   #8
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Originally Posted by pb4uski View Post
Yup. A lot of people out there that aren't paying attention.

NO way!??! ( Hang on, Tongue stuck in cheek.)



It's kind of sad isn't it?
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Old 02-09-2019, 08:07 AM   #9
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OK, so any house that sells over $500K ($250K if sold by a single) is reported?

No.


Any gains ( Hence, "Capital Gains" ) over $250/500k are reported and taxed.


It's been that way for 20+ years now...



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Old 02-09-2019, 08:11 AM   #10
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NO way!??! ( Hang on, Tongue stuck in cheek.)



It's kind of sad isn't it?
Very sad... and many of them are the first to complain that they can't "get ahead".
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Old 02-09-2019, 08:14 AM   #11
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A few years ago, I had a CPA client who argued with me about the new rules. He did the research and sent me the old rules and said I needed to update the advice I was giving. I sent him back the new regs and articles that referenced the old rules and how they were updated to the $250/500k rules. He was shocked and never questioned meagain!
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Old 02-09-2019, 08:37 AM   #12
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No, because it the proceeds from the sale are under the cap then the gain on sale has to be under the cap assuming a basis of zero.

If the sales proceeds are over the cap then it gets reported.
I knew about the 500k cap gain rule, but didn't know that effectively sales under 500k are not reported.
My parents just sold their house for 380k, so no reporting at all. They do have their own CPA for taxes.
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Old 02-09-2019, 09:23 AM   #13
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Quote:
Originally Posted by EarlyBirdly View Post
NO way!??! ( Hang on, Tongue stuck in cheek.)



It's kind of sad isn't it?
Quote:
Originally Posted by EarlyBirdly View Post
Quote:
Originally Posted by RunningBum View Post
OK, so any house that sells over $500K ($250K if sold by a single) is reported?
No.


Any gains ( Hence, "Capital Gains" ) over $250/500k are reported and taxed.


It's been that way for 20+ years now...



Now maybe I have this wrong, but I don't think so. And if I'm right, it' strikes me as sad/ironic that you are claiming it is sad that people don't know this, when you yourself are spreading incorrect information!

The post you responded to makes sense to me - the IRS does not know the basis until you report it. And according to the IRS document, sales are reported on form 1099-S.

https://www.irs.gov/pub/irs-pdf/f1099s.pdf
Quote:
Instructions for Transferor -- For sales or exchanges of certain real estate, the person responsible for closing a real estate transaction must report the real estate proceeds to the IRS and must furnish this statement to you
https://www.irs.gov/pub/irs-pdf/i1040sd.pdf

Quote:
If you had a gain and can exclude part or all of it, enter “H” in column (f) of Form 8949. Enter the exclusion as a negative number (in parentheses) in column (g) of Form 8949. See the instructions for Form 8949, columns (f), (g), and (h). Complete all columns.
So it sure looks like you need to enter it, just like any other asset sale, and then enter cost basis to determine the gain/loss, and any exclusion is documented here.

If I'm right, will we get a mea culpa?

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Old 02-09-2019, 09:32 AM   #14
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And this document:

https://www.irs.gov/instructions/i1099s

Does cover the exception that the sale does not have to be reported if the sale (not the gain) is under $250,000/$500,000 and it is clear that the seller is entitled to the $250,000/$500,000 exemption.

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Old 02-09-2019, 09:38 AM   #15
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Quote:
Originally Posted by HadEnuff View Post
I just closed on a house last June, and we were well under that 500K cap. In fact, if you are under the cap, it doesn't even get reported to the IRS, no 1099...I specifically asked because I wondered if it would be one of those items that doesn't raise your tax bill, but does get reported where it becomes a consideration for the ACA MAGI number, but it does not.
According to the lawyer who did my closing.
I'm confused (not the first time). Why wouldn't all sales be reported on 1099-S? The lawyer, real-estate agent, or whoever files this form doesn't actually know whether you're entitled to an exemption or not. You could be selling a place that's only been your primary residence for 18 months, in which case you owe cap gains tax even if the profit is less than $250K. It seems to me that they should always file the form and then you should handle it or not handle it when you file your taxes.

edit: Oh, I see from ERD50's link that you have to file 1099-S unless the sellers provide an "acceptable written assurance" that they are entitled to the exemption. I suppose that there are probably forms to sign at closing that provide this assurance.
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Old 02-09-2019, 09:43 AM   #16
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.... Both thought the pre-1997 rules (must buy a new, more expensive home to "roll over" the capital gains), was still in effect.

You no longer have to buy a replacement home for tax free benefits.
...
And I always felt that old rule was misunderstood by many at the time. I think people took it as a "gate" - that if you didn't buy a more expensive home, you'd have lots of taxes due, and if you bought a more expensive home, no taxes due.

As I understand it, it would only be the difference that was subject to cap gains. As a pre-1997 example, sell a $400,000 home, buy a $390,000 home, you may owe cap gains on the $10,000 that was not carried forward.

But I think it was in the Real Estate industries best interest to use the shorthand version of this, to encourage buyers to move up in price.

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Old 02-09-2019, 09:46 AM   #17
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From Turbotax/Intuit :

" Profit on home sale usually tax-free

Most home sellers don’t even have to report the transaction to the IRS. But if you’re one of the exceptions, knowing the rules will help you hold down your tax bill.

Do I have to pay taxes on the profit I made selling my home?

"Single...If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.

If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxable profit from your taxable income. "


When I sold my last property I entered the sale and let TurboTax do the rest...No Capital Gains were taxed as they were well below $250k.


Of course, if wrong I would surely extend a Mea Culpa (!)





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Old 02-09-2019, 09:58 AM   #18
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Originally Posted by EarlyBirdly View Post
From Turbotax/Intuit :

" Profit on home sale usually tax-free

Most home sellers don’t even have to report the transaction to the IRS. But if you’re one of the exceptions, knowing the rules will help you hold down your tax bill.

Do I have to pay taxes on the profit I made selling my home?

"Single...If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.

If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxable profit from your taxable income. "


When I sold my last property I entered the sale and let TurboTax do the rest...No Capital Gains were taxed as they were well below $250k.


Of course, if wrong I would surely extend a Mea Culpa (!)





BirdMan
The above is not wrong, but your earlier reply was. That's the mea culpa I asked about. You are changing the subject.

Quote:
Originally Posted by EarlyBirdly
Quote:
Quote:
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OK, so any house that sells over $500K ($250K if sold by a single) is reported?
No.
So as I said, your later statements are correct, but it is not correct to say that a sale greater than $250K/$500K is not reported if the gains are less than $250K/$500K.

The sale is reported so the cost basis and gains can be documented.

Right?

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Old 02-09-2019, 10:09 AM   #19
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See above ^^^

" Most home sellers donít even have to report the transaction to the IRS."


I'm just quoting TurboTax...So, if they are wrong, I will STILL apologize.


How's that?


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Old 02-09-2019, 10:23 AM   #20
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We bought a house in Elmhurst 1996, $180K (small brick ranch, small lot, great neighborhood). Sold in 2003 $310K. No CG tax on $130K. Tax free appreciation. I'm pretty sure it has to be your personal residence. Can't do this on vacation homes or real estate investments.
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