Personal home sale tax free gains

[audreyh1]

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.

www.nolo.com/legal-encyclopedia/avoid-capital-gains-tax-selling-home-29901.html

My Dad thought this a few years ago and I had to explain to him that if he sold his house, he wasn't required to roll over the proceeds into another house in order to avoid taxes.

 

[Souschef]

I have read the entire thread, and nobody has mentioned the 1099S form to wit:


The form is normally issued by a lending company or title company. And the 1099-S is issued to the seller, who must report the sale on their personal income tax return. The 1099-S includes some of the information needed to report the taxable transaction of a home sale or other real estate transfer
When I sold my condo some years ago, I was given a 1099S reporting the sale.

 

[Amethyst]

No, you're not lost; I just don't have my meeting notes handy. Maybe it was a house purchased before 1997, not 2000.

What I don't know is how far back the IRS will check, to be sure you are reporting the entire "chain."

And I believe this extends to sale before 1997 when the law changed. But I've always had trouble finding a reference for that.

So if I (all primary residence):

Bought in 1978 @ $30,000
Sold in 1983 @ $45,000, and bought a home that year for $100,000
Sold that $100,000 home for $200,000 in 1993...

So far, no cap gains under pre-1997 rules as I moved up in cost. And it would seem to me, no need to keep records going back, as moving up was all that was required to avoid cap gains taxes, right?

But what happens if I sell in 2019, for more than $700,000? Is my cost basis $200,000 (plus capital improvements), or does it 'chain' back to 1978, and I'd have to add the gains on previous homes?

It seems unreasonable to expect records for pre 1997, if those records were not needed at the time?

But I guess this is what you are saying? You need to follow the "Chain" all the way back? But wait... a 2000 sale would not be 'sheltered' by buying a more $ house, that was pre-1997. I'm lost again.

-ERD50

 

[ERD50]

I have read the entire thread, and nobody has mentioned the 1099S form to wit:


The form is normally issued by a lending company or title company. And the 1099-S is issued to the seller, who must report the sale on their personal income tax return. The 1099-S includes some of the information needed to report the taxable transaction of a home sale or other real estate transfer
When I sold my condo some years ago, I was given a 1099S reporting the sale.

Maybe you have me on ignore? See my post #13 and #14, or maybe someone can quote them so you see them

-ERD50

 

[Souschef]

Maybe you have me on ignore? See my post #13 and #14, or maybe someone can quote them so you see them

-ERD50

Sorry, ERD I must have missed them, especially in #13. I would NEVER have you on ignore

 

[EarlyBirdly]

 

[ERD50]

Sorry, ERD I must have missed them, especially in #13. I would NEVER have you on ignore

Just teasin' - Threads get long, it's easy to miss stuff.

Any update on that switch engine?

-ERD50

 

[Dtail]

On a related note, we just bought a house.
We paid for an inspection report on house A which we passed on and house B which we bought.
For tax basis purposes, can we add the cost of BOTH inspection costs to the current house?

 

[Koolau]

Yeah, we did the less-than-$500K-profit deal on a home sale a few years back. It WAS however complicated by the fact that we had rented out the place for a while. We had to do depreciation recapture which is why God created CPAs. YMMV

 

[RunningBum]

No.


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


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

How does the closing agent know what your gains are? Do they ask what you bought the house for, and how much basis you added in improvements? That's the only way they'd know. All they know is the selling price and any closing costs unless you give them more information.

 

[RunningBum]

And to be clear I'm asking what a closing agent reports to the IRS (if anything). I understand what an individual owes (or not) to the IRS.

 

[Souschef]

Just teasin' - Threads get long, it's easy to miss stuff.

Any update on that switch engine?

-ERD50

Still working on it. Right now we are setting the injectors. I just bought 2 monster batteries with 1000 cold cranking amps to turn the engine over..

 

[Koolau]

And to be clear I'm asking what a closing agent reports to the IRS (if anything). I understand what an individual owes (or not) to the IRS.

It's been a few years, but IIRC the seller (you or me) has to report to the IRS and substantiate the data. The "closing statement" (I think that's what it's called) is one of the submissions. I'm guessing that's all the age is required to submit. It shows little or nothing about your purchase situation - again IIRC. In essence, it's pretty much between you (and your CPA, heh, henth) and the IRS. The seller's "agent" may have to report a 1099 or a copy of the closing statement, etc. I forget, so YMMV.

 

[audreyh1]

And to be clear I'm asking what a closing agent reports to the IRS (if anything). I understand what an individual owes (or not) to the IRS.

No, the closing agent doesn’t know your gain. We never got any form from the realtor. We just filled out the appropriate tax form to declare the gain and show that it was under $250k. That was 2005 taxes.

Right - we did have the closing statement and referenced it.

 

[brucethebroker]

I'm pretty sure it has to be your personal residence. Can't do this on vacation homes or real estate investments.

OP here. NOLO link on bottom of original post can answer your "pretty sure" question.

 

[HadEnuff]

once upon a time, did the sellers have to be of a certain age to forego the capital gain, unless they plowed the money into another house?

 

[karen1972]

Not sure if it varies state to state or lawyer to lawyer, but we just sold our home last week.

The closing lawyer sent us a questionnaire we had to sign which provided a list of questions, it asked if we were single/married, would we make more than 250/500 from the sale, did we take a home office tax deduction, was it your primary residence 2 of the last 5 years. there may be others I can't remember and can't find it... basically it just asks all the tax questions up front, you sign, and the lawyers use that to decide whether to file a tax report or not.


Since my BF and I are not married, I filed mine as all nos so they will not file any tax records for me, my BF however did write off a home office deduction so they will file one for him as he will have to reconcile that on next years taxes.

 

[NYEXPAT]

I have sold 3 homes since 1999 netting $200,000, $240,000, $250,000 and never had to report the sale or pay taxes on the gains. Hopefully, I can find another "Hot market" in the future?

 

[ERD50]

I have sold 3 homes since 1999 netting $200,000, $240,000, $250,000 and never had to report the sale or pay taxes on the gains. Hopefully, I can find another "Hot market" in the future?

If you're following the info in the thread, if you were married and the sale price was under $500,000, the sale does not need to be reported. Not sure what you mean by 'net' - net from the sale (sale price minus closing expenses/fees), or net gain (considering cost basis)?

If single, the $250,000 sale net applies.

-ERD50

 

[NYEXPAT]

If you're following the info in the thread, if you were married and the sale price was under $500,000, the sale does not need to be reported. Not sure what you mean by 'net' - net from the sale (sale price minus closing expenses/fees), or net gain (considering cost basis)?

If single, the $250,000 sale net applies.

-ERD50

I was referring to "net gain" profit on sale. Never went over the $250,000 profit mark. Now, it does not matter as the property is overseas and not in my name and the taxing country does not tax capital gains on RE if you do not have multiple homes.

 

[marko]

I wonder how this will eventually work for me and several of my neighbors.

About 6 of us are living in our grandfathers' or great-grandfathers' houses. These homes haven't been in a public sale for over a century; just passed down and around with $1 transfers and/or trusts/inheritances over time.

Would the basis be the original public sale back in 1888 or the more recent 'purchase' ($1) or inheritance?

I never paid much attention but there is a possibility that DW and I will move/sell before we die.

 

[karen1972]

I wonder how this will eventually work for me and several of my neighbors.

About 6 of us are living in our grandfathers' or great-grandfathers' houses. These homes haven't been in a public sale for over a century; just passed down and around with $1 transfers and/or trusts/inheritances over time.

Would the basis be the original public sale back in 1888 or the more recent 'purchase' ($1) or inheritance?

I never paid much attention but there is a possibility that DW and I will move/sell before we die.

well if you bought it for $1, then your cost basis is $1, if you inherited it, you really should have had it appraised at that time so you can justify the value of it and then should have been able to use the value of it at that time as cost basis. Not exactly sure what happens when you don't have it appraised as it may become an issue proving stepped up value.

 

[Ian S]

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

 

[CardsFan]

I wonder how this will eventually work for me and several of my neighbors.

About 6 of us are living in our grandfathers' or great-grandfathers' houses. These homes haven't been in a public sale for over a century; just passed down and around with $1 transfers and/or trusts/inheritances over time.

Would the basis be the original public sale back in 1888 or the more recent 'purchase' ($1) or inheritance?

I never paid much attention but there is a possibility that DW and I will move/sell before we die.

Not sure it really matters much if the cost basis is $1, or actual cost in 1888 . Basically the total value is capital gains

But as Karen said, there should be a stepped-up basis if the house was inherited.

 

[brucethebroker]

well if you bought it for $1, then your cost basis is $1, if you inherited it, you really should have had it appraised at that time so you can justify the value of it and then should have been able to use the value of it at that time as cost basis. Not exactly sure what happens when you don't have it appraised as it may become an issue proving stepped up value.

Perhaps a local property appraiser, with experience dating back to your inheritance date, would be able o estimate the value. Or not. A CPA or Tax Atty. should be able to figure it out.