Tax implications for selling 2 houses while deployed

[FI by 2024]

Hello,

I am currently deployed and will be for 7 months in 2015. I am also trying to sell two houses: my primary residence and a rental property. I know my pay is income tax free while deployed but I'm not sure how the sale of the houses affects things. I have several questions.

1) will the money from the sale of my primary home be counted as 2015 income? I won't have to pay tax - gains are less than $250k and I've live in it >2 of the last 5 years - but does it count as income? If yes, is it the entire sale that counts as income, or just the gains?

2) what percentage will my capital gains tax be on the rental property? This appears to be based on my income which is why question #1 matters. I've owned the house for over three years.

3) the law is clear on "pay" being income tax free while here, but I can't find anything on whether that includes other forms of income. Any ideas?

If it helps, I expect to sell both houses for ~$285k each ($570k total), total gains should be around $185k, and my taxable pay for the year will be around $35k.

Thanks for the help!


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[HawkeyeNFO]

I think you gotta pay the tax.

however, did you ever live in the rental home, before converting it to a rental? Keep in mind the military extension of the "2 in 5" rule for the capital gains tax exemption. In your case, it may become a "2 in 10" rule. I'll edit this post and add a link when I get in front of a real computer instead my iPod.

 

[Onward]

1) will the money from the sale of my primary home be counted as 2015 income? I won't have to pay tax - gains are less than $250k and I've live in it >2 of the last 5 years - but does it count as income? If yes, is it the entire sale that counts as income, or just the gains?

2) what percentage will my capital gains tax be on the rental property? This appears to be based on my income which is why question #1 matters. I've owned the house for over three years.

3) the law is clear on "pay" being income tax free while here, but I can't find anything on whether that includes other forms of income. Any ideas?

1) It doesn't count as income. You're not even required to report it on your tax return unless you were issued a form 1099-S.

2) Depends on your income, but probably will be 15%. Don't forget you also have to pay tax on recaptured depreciation of the property.

3) I strongly suspect that only your earned income (i.e. your pay) is tax-free. Other forms of income, like capital gains, will be taxed normally.


I am not an attorney, CPA, or Enrolled Agent. The information contained in this post is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this post without seeking legal or other professional advice.

 

[FI by 2024]

Hawkeye: I didn't live in the rental house so the military extension won't help, unfortunately.

Onward: thanks for the info. I'll look up the 1099-S to see whether to expect one. Love the disclaimer!


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[meierlde]

Hawkeye: I didn't live in the rental house so the military extension won't help, unfortunately.

Onward: thanks for the info. I'll look up the 1099-S to see whether to expect one. Love the disclaimer!


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On the primary residence if the sales price is under 250k you will have a form to fill out that says since the sales price of the home was under 250k don't send a 1099-s (since no tax will be due) (I did that when I sold my house in Houston for 96k and no 1099s appeared) This will be a part of the closing process.

 

[FI by 2024]

The sale price is $285,000, so I will need a 1099-S? Even though the gains are untaxed?


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[meierlde]

The sale price is $285,000, so I will need a 1099-S? Even though the gains are untaxed?


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The answer is you will get a 1099-s from the title company. Note that your basis on that house includes for example a new roof ac unit etc (the last one if multiple of them have happened. Essentially you can add major capital expenditures onto you basis. On the rental you will automatically get a 1099s.
Note if you are married the limit is 500k