- quote -

Yes, she would qualify for the exclusion. The two years of
ownership and the two years of occupancy do not have to be
concurrent. But this does not solve the sister's problem. She
isn't interested in selling because she wants to move. She's
interested in selling because she wants to take the profit now.
Since she has to wait a year to sell anyway, she might as well
stay in the house.

Bob Sandler

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >

- quote -

It is better to look at total return than to obsess about
taxes. If the owners thinks the proerty will decline in
value more than the gain exclusion, then its worthwhile to
sell now. You might add the cost of holding it another
year into the equation too.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >

"bono9763[at]yahoo.com" <bono9763[at]yahoo.com> wrote:
- quote -

I just had a thought. If she moves out but continues to own
it for a total of two years, would she qualify? She would
have owned it for two years, and lived in it for two years,
all within the prior five years though not the same two year
periods.

Section 121(a) says,
"Gross income shall not include gain from the sale or
exchange of property if, during the 5-year period ending on
the date of the sale or exchange, such property has been
owned and used by the taxpayer as the taxpayer's principal
residence for periods aggregating 2 years or more."

Stu

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Phil Marti" <prm20871[at]verizon.net> wrote:
- quote -

Going to a real estate agent for tax advice is like going to
a lawyer for medical advice.

Stu

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Cherrybounce <cdmalke...[at]charter.net> wrote:

- quote -

Well, technically, the information attributed to the real
estate agent is accurate. However, to get the preferential
tax rate that goes with long term capital gains, your sister
has to have owned the home for MORE than a year.

Also, from your facts, your sister does NOT qualify to
exclude any of the gain under IRC Section 121.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Cherrybounce <cdmalke...[at]charter.net> wrote:

- quote -

The general rule is that you must own and occupy the house
as your principal residence for 2 out of the preceding 5
years, in order to qualify for the tax exclusion on real
estate profits.

The 2 years of occupancy and the 2 years of ownership do not
need to be the same years, but you do need 2 of each. From
what you wrote, your sister satisifies only the occupancy
part, not the ownership part.

In that case, she could sell the house, but the resulting
capital gains would be subject to normal taxation as capital
gains. If she bought more than 365 days ago, they would be
long-term gains.

Now, she could always move out and rent the place for a year
in order to fulfill the 2-year ownership requirement before
selling, since she has already fulfilled the 2-year
occupancy, but that would delay the sale for about a year
and include the hassles of being a landlady.

Perhaps patience is the best counsel?

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

- quote -

The story is that the real estate agent is right, but is
answering a different question than the one your sister
really wants to ask. There are two different issues here:
(1) capital gain tax rates, and (2) exclusion of gain.

(1) As long as your sister has OWNED the house for more than
ONE year, any profit she makes on the house will be taxed at
long-term capital gain rates. That's what the real estate
agent is talking about. To get the long-term capital gain
rates, it doesn't matter how long she has LIVED in the
house. She doesn't even have to have lived in it at all.

(2) But if she waits another year, she will be able to
EXCLUDE up to $250,000 of the profit from taxation (assuming
she is single). In other words, she will not have to pay any
tax at all on the first $250,000 of profit. If her profit is
higher than that, she will pay tax at long-term capital gain
rates on the amount of profit over $250,000. This exclusion
is what you are thinking of, with the two-year requirement.

To get the exclusion she has to have both LIVED in the house
for at least two of the five years preceding the sale, and
also OWNED the house for at least two of the five years
preceding the sale. She has already lived there for more
than two years, but she needs another year of ownership to
qualify for the exclusion. As you seem to be aware, if
someone has owned and lived in a home for less than two
years, it is possible to qualify for a partial exclusion if
they sell the home for certain reasons. But wanting to take
the profit is not one of those reasons. So if she sells now,
she will get the long-term capital gain rates, but she will
have to pay tax on the entire profit.

Bob Sandler

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Cherrybounce <cdmalke...[at]charter.net> wrote:

- quote -

Because she did not own the home for at least two years, she
will have to pay tax on the gain. The real estate agent is
correct, the sale of the home will be reported on Schedule D
as a capital gain. If she owned the home for one year or
less (from date of closing to date of closing), it will be a
short-term capital gain and will be taxed as ordinary income
at the regular rates. If she owned the home longer than one
year, it will be a long-term capital gain and will receive
favorable tax treatment, i.e. the maximum rate is 15% of the
gain.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Cherrybounce <cdmalkemus[at]charter.net> wrote:

- quote -

Why were you and your husband the legal owners? If you were
doing it to help her buy the place, you really held it in
trust for her and she really was the "legal" owner even
though not the registered owner.

- quote -

That's occasionally right but generally wrong - and based on
what you say it would be wrong in this case.

But you might have an argument that your sister really was
the owner for three years even though your name was on
title.

Stu

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Cherrybounce <cdmalke...[at]charter.net> wrote:

- quote -

It will likely be worthwhile for your sister to remain in
the home for the full 2 year period. Having done that, she
could qualify for an exclusion of up to $250,000 in gains
($500,000 if married filing jointly) and, possibly, NO TAX
on the sale. Otherwise, the gain will be subject to Long
Term Capital Gain treatment (on the entire gain), if she
lived in the house for over one year (and less than two
years) and there was no compelling unexpected reason for the
sale..

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Cherrybounce <cdmalke...[at]charter.net> wrote:

- quote -

The "story" is that she will pay capital gains tax on any
appreciation in value, at ORDINARY tax rates if held for
less than one year. She doesn't appear to have met the basic
requirements for gain exclusion, since she has not owned the
property for at least two of the past five years, and her
reason for selling early does not meet any of those
allowable for pro-rated exclusion.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Cherrybounce" <cdmalkemus[at]charter.net> wrote:

- quote -

The real estate agent's advice is useless. When you sell a
home for a profit you have a capital gain.

We'll assume that your sister's concern is the exclusion of
capital gain on the sale of a primary residence. For that
to apply she must have owned the property for 2 years, so
she has to wait.

See IRS Publication 521.

--
Phil Marti
Clarksburg, MD

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

My sister has lived in her house for 3 years, BUT the first
2 years my husband and I legally owned the home. She bought
it one year ago and now wants to sell it. She has no
extraoridinary reasons for wanting to sell it other than she
can make some money on it due to rapid appreciation in our
area.

The real estate told her she doesn't have to live in a home for 2
years to get cap gain treatment on any profit she makes on her house.

What is the story? THanks.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >