Personal home sale tax free gains

[38Chevy454]

I believe there are forensic financial professionals that could get an estimated stepped-up cost basis for the date you inherited the house, if that was how you got it. If actually sold, then as stated the cost basis is what you bought it for; even if that was $1.

 

[TrvlBug]

I assume it doesn't matter if the title is in one name; as long as you are married that the $500K exemption applies.

Correct. That was our situation.

 

[audreyh1]

I guess if the home sells for less than $250K or $500K the realtor does not have to report anything? Otherwise they do?

 

[Rianne]

This article does not say anything about the original purchase price or the value of the home at the time of sale. Simply defines capital gains on a primary residence. Must be lived in 2 of the last 5 years. Based on this, if I bought a $600,000 home and sold it for $1,100,00 and am married, the appreciation of $500,000 is tax free.

https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp

 

[karen1972]

I guess if the home sells for less than $250K or $500K the realtor does not have to report anything? Otherwise they do?

It is not that simple, which is why closing lawyers may have you fill out paperwork to determine to report or not or just automatically report it and leave you deal with it come tax time.

You would still owe if you
A) didn't meet the 2 year mark
B) had it as a rental
C) used it in a home office write off
D) wasn't your primary residence

those 4 that come to mind very quickly where taxes would still be due for at least some of it.

 

[TrvlBug]

I guess if the home sells for less than $250K or $500K the realtor does not have to report anything? Otherwise they do?

I don't recall if it was reported (home sold for >$500K), but I don't think so.

 

[Elbata]

Back in early 2000s, recently married and tax preparer over at the house to get the papers to do taxes. I ask her after cursory glance, how does it look for my taxes? All's fine she says, except I'll owe capital gains on the house I recently sold.

I explained to her that there are no cap gains up to $250K. She and my newly attorney wife told me, the lowly appliance repairman, how wrong I was. Tax lady called me the next day and said I was right, but last time I hired her to do my taxes.

 

[dixter]

well...this is my case... sold a home for $215K... the Title Company is the one that sent me the 1099-S and I input that into the Turbo Tax software... it also asked for the cost basis and that included all costs associated with the sale... and any improvements to the home... put that all in there and yes it was below the $500K... but it was required that it be input as again.. the Title Company sent me and the IRS the 1099-S... I would think some of my work buddies that think they can use their inflated homes as part of their retirement funds might be a little surprised when they have to pay taxes on their homes when they sell... its counted as earned income and yes it does mess with medicare MAGI... that number also gets shown on the summary page in Turbo Tax... need to pay attention to that number or your health care montly payments could go thru the roof...

 

[Amethyst]

I'd presume that you can deduct the costs of selling (real estate agent's commission which can be quite substantial, closing costs paid by seller) and any capital improvements to the home (adding a deck or pool, finishing the basement etc).

 

[Livefree]

My accountant informed me that if you did capital improvements, like a roof, furnace etc. those can be added to the $500k tax free amount.



So if you and spouse sold for $550k and did $50k in improvements, i't's all tax free.

 

[Crabby Mike]

I'd presume that you can deduct the costs of selling (real estate agent's commission which can be quite substantial, closing costs paid by seller) and any capital improvements to the home (adding a deck or pool, finishing the basement etc).

Also the costs of buying (settlement, etc.) That's why you should keep a file on costs related to your house throughout its life, starting with the settlement statement from purchase. As said above, you can also count "improvements" in your basis, but you're not supposed to include repairs or maintenance, though the lines are sometimes fuzzy.

 

[jkern]

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.

In CA you will get a 1099-S whether you are under the cap or not. Technically, the Title Co. has no way of knowing if you are under the cap. They don't have information such as home improvements that raise your cost basis.

 

[ncbill]

Years ago when I was claiming mid-5 figures in medical expenses on mom's return I asked our tax preparer (CPA w/ JD tax law) if that was an audit trigger.

He told me that in 25+ years of practice he had never seen medical expenses or the reported basis of investments questioned (back then they were all uncovered)

So as with the above I suspect the basis...is whatever you say it is.

 

[kite_rider]

I haven't seen a discussion about how the IRS determines if a property is your 'primary residence'. DW and I own three properties and we spend a fair amount of time in each of them. Once our kids are out of school I'm considering changing my drivers license, bank account, and voter registration to a different property.

Would that become my 'primary residence'? That was sort of how it worked for University residence status..

 

[Montecfo]

I'd presume that you can deduct the costs of selling (real estate agent's commission which can be quite substantial, closing costs paid by seller) and any capital improvements to the home (adding a deck or pool, finishing the basement etc).

Yes. You also have to reduce your cost basis for any pre-1997 gains on sale of residence that were deferred under tax law then in effect.

 

[braumeister]

I haven't seen a discussion about how the IRS determines if a property is your 'primary residence'. DW and I own three properties and we spend a fair amount of time in each of them. Once our kids are out of school I'm considering changing my drivers license, bank account, and voter registration to a different property.

Would that become my 'primary residence'? That was sort of how it worked for University residence status..

That sort of thing is pretty straightforward for the Feds. Where some people run into problems is convincing the state (where they have been paying taxes) to let them go. Every state has its own standards to meet in that regard. I understand California is particularly problematic.

 

[kite_rider]

I looked at some other web pages with regards to IRS determination of your primary residence and it seemed very wishy washy - like where do you go to church and stuff like that. Seems like this would only be determined in some sort of face to face audit process and I don't know how common those are.

I've always done my own taxes and over my entire tax life I only had one IRS letter that had questions regarding income I (mis)reported. This one related to complicated employer provided stock options. Turns out the IRS was right and after I fixed the issue the IRS sent ME a check for about $200!

 

[statsman]

Yes. You also have to reduce your cost basis for any pre-1997 gains on sale of residence that were deferred under tax law then in effect.

Correct. We just sold our house in 2018 that was originally purchased in 1995. That house was a step up from a house we purchased prior to that in 1986 and sold in 1995. When we filed taxes in 1995, we submitted Form 2119, which included an adjusted basis line for the house purchased in 1995 to account for the capital gains of the first house sold in 1995.

 

[Bir48die]

My accountant informed me that if you did capital improvements, like a roof, furnace etc. those can be added to the $500k tax free amount.



So if you and spouse sold for $550k and did $50k in improvements, i't's all tax free.

Yes. This is true. However you need to know which are improvements and which are maintenance. For some a gray area but it’s pretty well spelled out in the regs.

 

[audreyh1]

My accountant informed me that if you did capital improvements, like a roof, furnace etc. those can be added to the $500k tax free amount.



So if you and spouse sold for $550k and did $50k in improvements, i't's all tax free.

There is also what you paid for the house - subtract basis.

 

[robnplunder]

"If you expect huge gains from selling a house -- more than can be excluded from tax -- you should consider ways to divide ownership of the house.

For example, say a couple owns their residence together with their adult son (perhaps because they've given him a share). If he meets the ownership and use tests as to one-third of the property, the son may sell his share for a $250,000 gain without incurring a tax. His parents could simultaneously sell their share for $500,000 without tax, sheltering the entire $750,000 gain."




My DS will come in handy when I sell our house!!!!!

 

[pb4uski]

^^^^ if DS is going to claim the tax-free benefit then you better make sure that you have filed a gift tax form where you gave him the 1/3, he files a tax return with the proceeds of sale... and most importantly... 1/3 of the proceeds from sale end up in his bank account and don't find their way back to you other than perhaps by gift and he files the requisite gift tax form.... also cross your fingers that the tax court judge will condone your scheme.