Any accountants here that can explain some intricacies for capital gains on a home sale? (1 Viewer)

[cosjobs]

My accountant is on vacation. I got a huge cash offer for my house that needs a quick response. I really need to properly research the taxable events this may incur.

I have been in the new house 15 months.

I sold my last house in march 2020, but have not yet filed those taxes, so could I possibly use this sale  instead of that one for the homeowner thing I can only do every two years?

I had extremely low income last year (and this) as new retiree, but there was the house sale and some income property. Even with the income property we would not exceed the max for 0% capital gains of 80K/yr.

I also have at least $70K in short term capital losses I have been carrying forward since some stupid stock decisions six years ago.

I also moved a huge amount of my Traditional IRa to a Roth last year since my income was so low, the tax rate on it was cheap.

 

[Zegras11]

I sold my last house in march 2020, but have not yet filed those taxes, so could I possibly use this sale  instead of that one for the homeowner thing I can only do every two years?

Pretty sure when you sold, your title company asked you to check a box on this that they send to the IRS on whether youve lived in the home two of the last five years.

 

[Zegras11]

I have been in the new house 15 months.

Dependent on an income threshold, I've had clients tell me their CPA was able to get them a pro rated (15/24) amount to pay long term capital . If you qualify, you'd pay 9/24 of the tax.

 

[cosjobs]

Dependent on an income threshold, I've had clients tell me their CPA was able to get them a pro rated (15/24) amount to pay long term capital . If you qualify, you'd pay 9/24 of the tax.

I do not understand what those numbers mean. 

 

[Zegras11]

I do not understand what those numbers mean. 

24 = 24 months, or the  2 of 5 years.  You said you were in home for 15 months, so maybe have to pay taxes on the 9 months out of 24, so a pro rated percent of 9/24.

 

[cosjobs]

24 = 24 months, or the  2 of 5 years.  You said you were in home for 15 months, so maybe have to pay taxes on the 9 months out of 24, so a pro rated percent of 9/24.

interesting and seems a fair compromise I would not have expected.

 

[Tom Hagen]

Dependent on an income threshold, I've had clients tell me their CPA was able to get them a pro rated (15/24) amount to pay long term capital . If you qualify, you'd pay 9/24 of the tax.

You need an acceptable reason to qualify for a pro-rata exclusion such a work related or health related move. Oddly, the birth of twins qualifies. 

 

[cosjobs]

You need an acceptable reason to qualify for a pro-rata exclusion such a work related or health related move. Oddly, the birth of twins qualifies. 

Retiring in the time of COVID?

 

[Tom Hagen]

My accountant is on vacation. I got a huge cash offer for my house that needs a quick response. I really need to properly research the taxable events this may incur.

I have been in the new house 15 months.

I sold my last house in march 2020, but have not yet filed those taxes, so could I possibly use this sale  instead of that one for the homeowner thing I can only do every two years?

I had extremely low income last year (and this) as new retiree, but there was the house sale and some income property. Even with the income property we would not exceed the max for 0% capital gains of 80K/yr.

I also have at least $70K in short term capital losses I have been carrying forward since some stupid stock decisions six years ago.

I also moved a huge amount of my Traditional IRa to a Roth last year since my income was so low, the tax rate on it was cheap.

If you have owned and used the house as your primary residence less than 2 years, you won’t qualify for the full exclusion even if you elected to pay tax on the 2020 sale. As mentioned above you would need a reason to get a prorated exclusion. Health or work related moves could qualify. 

You should be able to offset any taxable gain on the sale with the $70k in capital losses carried over. As you mentioned, to the extent any remaining gains fall in the 10% or 12% tax bracket the long term capital gain rate is 0%.

 

[Tom Hagen]

Retiring in the time of COVID?

You could conceivably qualify for a partial exclusion if you needed to move due to “unforeseen circumstances.”  The IRS has codified some of these (the twins thing) but the list is not exhaustive.  

 

[cosjobs]

If you have owned and used the house as your primary residence less than 2 years, you won’t qualify for the full exclusion even if you elected to pay tax on the 2020 sale. As mentioned above you would need a reason to get a prorated exclusion. Health or work related moves could qualify. 

You should be able to offset any taxable gain on the sale with the $70k in capital losses carried over. As you mentioned, to the extent any remaining gains fall in the 10% or 12% tax bracket the long term capital gain rate is 0%.

This is what I am having trouble understanding from my online research.

I assume the income used to decide my Cap Gains cap rate would only be from this year, the year I made the  sale/windfall?

We get social security and have a rent house. We also have enough property taxes and healthcare costs (thanks dentist and knee repairmen) to itemize. So if our net income is <$80K, we would owe no cap gains tax up to $500K?

If I withdrew from my Roths, that would not affect any of these amounts or caps, right?

 

[cosjobs]

You could conceivably qualify for a partial exclusion if you needed to move due to “unforeseen circumstances.”  The IRS has codified some of these (the twins thing) but the list is not exhaustive.  

I was kidding on that part, try to play off Love in the Time of Cholera.

 

[IC FBGCav]

You could conceivably qualify for a partial exclusion if you needed to move due to “unforeseen circumstances.”  The IRS has codified some of these (the twins thing) but the list is not exhaustive.  

Everything this guy says is spot on.  Your other option is a 60 day rollover into another property.  

 

[cosjobs]

Everything this guy says is spot on.  Your other option is a 60 day rollover into another property.  

Are you say that if I spent all the profits on another house, I would not have any tax liability, if I did it within 60 days of sale?

 

[IC FBGCav]

Are you say that if I spent all the profits on another house, I would not have any tax liability, if I did it within 60 days of sale?

No, if you sell a house, any house not just your primary residence, you roll it to a 1031 exchange 

https://www.google.com/search?q=1031+real+estate+exchange&oq=1031&aqs=chrome.2.69i57j0i433j0l2j0i433.4353j0j7&client=ms-android-verizon&sourceid=chrome-mobile&ie=UTF-8

 

[IC FBGCav]

You have to put it in another property in 60 days.

 

[Zegras11]

No, if you sell a house, any house not just your primary residence, you roll it to a 1031 exchange 

https://www.google.com/search?q=1031+real+estate+exchange&oq=1031&aqs=chrome.2.69i57j0i433j0l2j0i433.4353j0j7&client=ms-android-verizon&sourceid=chrome-mobile&ie=UTF-8

can't do a 1031 on a primary residence.

 

[cosjobs]

can't do a 1031 on a primary residence.

That was my understanding. I could sell my rent house and roll it into another, but it just defers the taxes un til I sell the next one.If I were younger I owuld likely do that, but I don't think it is particularly beneficial to me now.

 

[jon_mx]

Is this huge cash over above the market value of the house?  Is there any reason you can't wait 9 month and get a similar offer?  

 

[Joe Mammy]

My accountant is on vacation. I got a huge cash offer for my house that needs a quick response. I really need to properly research the taxable events this may incur.

I have been in the new house 15 months.

I sold my last house in march 2020, but have not yet filed those taxes, so could I possibly use this sale  instead of that one for the homeowner thing I can only do every two years?

I had extremely low income last year (and this) as new retiree, but there was the house sale and some income property. Even with the income property we would not exceed the max for 0% capital gains of 80K/yr.

I also have at least $70K in short term capital losses I have been carrying forward since some stupid stock decisions six years ago.

I also moved a huge amount of my Traditional IRa to a Roth last year since my income was so low, the tax rate on it was cheap.

My wife is an accountant. A good one. I just read her out loud your post. She says if you'd waited another year for the new sale it would have been beneficial. 

Otherwise all of that other stuff doesn't matter. Buckle up and pay capital gains on the new sale. Sorry buddy. She suggested renting to the buyers for a year and then close.

 

[cosjobs]

Is this huge cash over above the market value of the house?  Is there any reason you can't wait 9 month and get a similar offer?  

It is the current market value. But it has been and incredibly sharp rise. About 80% in 13 months. I really question its sustainability. THere are so many things that could happen and change the market. Lots of big companies (Tesla, more Apple, more Oracle, etc. etc.) driving the prices up. But the vast majority of residents here can afford  $300-400,000 minimum for a house, esp. when property taxes here run about 3-4%/yr. 

I've been a big gambler my whole life and when I hit big, I always go stash some winnings before returning to the table.

The smart move would usually be to hold, but only if the market doesn't swoon in the next 9 months. I check Zillow every day and I'd say there are 15% more listings sold, but another 20% of new listings. Frothy would be an understatement. Everyone is wanting to cash in.