Cost basis when selling a house

[meierlde]

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.

 

[pb4uski]

....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.

 

[kaneohe]

don't deferred gains increase future gains? (or equivalently, decrease basis?)

 

[pb4uski]

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)

 

[haha]

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

 

[harley]

bE ADVISED: hARLEY IS CORRECT.

Just wanted to see this again. It's a rare occurrence.