- quote -

If you lived in your house at least 2 out the last 5 years,
you will not have to pay any capital gains on the sale.
There is a $250,000 (single), $500,000 (married filing
jointly) exclusion.

Kate, EA in PA

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"Bill" <rbu1[at]verizon.net> wrote:

- quote -

"A year ago" isn't long enough. You need to have lived in
the house for two years (out of the past five) to get the
capital gains exemption.

You can get a pro-rated capital gains exemption if you have
to move for any of a number of recognized "unforeseen
circumstances". Wanting to move to a nicer place isn't an
"unforeseen circumstance"; basically, you need a reason why
it was impossible or a great hardship to live there anymore.
See
http://www.loanshoppers.net/IRC_121_exemptions.htm for a summary.

What you paid for the new home doesn't enter into it.

--
Chris Green

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Bill wrote:

- quote -

Potentially relevant facts...

- quote -

Since 1997, most likely an utterly irrelevant fact.

- quote -

Maybe <grin> . Under current law, gain from the sale of
residence generally can be excluded up to $250,000 (or
$500,000 for a married couple filing a joint return) if
three tests are met:

1. The residence was owned by the taxpayers for two years
in the five year period immediately preceding the sale AND

2. The residence was used as the principal residence of the
taxpayer for two year of the five years immediately
preceding the date of sale AND

3. The taxpayer has not excluded a gain under this
provision of the law in the two years prior to the sale.

At first glance, you've got a problem since you fail test 1
for sure and, unless you were renting it before you owned
it, most likely fail test 2. I don't know about the third
test, but it's a possible problem as well. So the general
rule is that you would pay tax on the gain. Buying another
residence has not been relevant since May of 1997--you can't
defer the tax by reinvesting the proceeds.

However, there is an exception if your reason for selling
meets certain tests--then you may qualify for a prorated
portion of the maximum exclusion. If you owned and used the
property for exactly one year prior to the sale *AND* you
meet one of the exceptions, you might be able to exclude up
to $125,000 ($250,000 on a married joint return) of gain.
That would be enough to cover your gain, so you move
forward.

Now you have to look at the reason you sold. Generally your
sale needs to be due to reasons of employment, health or
"unforeseen circumstances as provided for in the
regulations".

So the key question is this: why are you selling?

--
Ed Zollars, CPA
Phoenix, Arizona

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- quote -

YES!!! In order to qualify for the $250/500,000 exclusion,
you must have lived in the home for at least 2 years out of
the five years preceding its sale.

You may be able to qualify for a partial exclusion, if the
move is mandated by job/medical/or unforseen circumstances.

"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

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Hello

I have a question. If my wife and I purchased our home a
year ago for 136,000 and we sell it for 190,000 and are
purchasing a new home for 250,000. Do we have to pay
capital gains tax? We used our home as a primary residence
the entire time. Any help would be greatly appreciated. I
don't know if it matters but I am in the USA

BILL

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