Capital Gains

[enron29]

Can someone school me on capital gains? Possibly looking at building a new home, and selling current. Depending on when we close, it may be just short of a year, or it may be after the 1 year + a day. I'm just trying to get an idea of how big the hit is going to be on taxes. I've read you can deduct a lot of fees from the sale of your house plus some improvements you have put into it. Also, there will be fees and such that can be deducted from the purchase of the new home, correct? So these will be deducted to hopefully offset the capital gains tax owed.

Am I thinking through this correctly? Would love some input on this.

Thanks.

[stevenc]

Married couples can shelter the first $500,000 (Single is $250,000) of gains on their primary residence so unless your gain is somehow going to be more than $500,000 dont worry about it.

[enron29]

Originally Posted by stevenc

Married couples can shelter the first $500,000 (Single is $250,000) of gains on their primary residence so unless your gain is somehow going to be more than $500,000 dont worry about it.

I thought that was only if you were in the home for over 2 years. We will possibly be just shy of a year, or just over.

The other thing I was wondering is if the gain is exempt if we completely use it all toward the construction of our new home. Or does this simply not apply?

[stevenc]

Correct. Have to have lived there 2 of the past 5 years.

Yes closing costs and any improvements to house help to lower the cap gains.

Like kind exchange does not apply to personal property so moving the money from one property to another doesnt do anything!

[enron29]

Originally Posted by stevenc

Correct. Have to have lived there 2 of the past 5 years.

Yes closing costs and any improvements to house help to lower the cap gains.

Like kind exchange does not apply to personal property so moving the money from one property to another doesnt do anything!

Bummer. Ok. Looks like I'm going to be having some tax hit then possibly. But this is all done at the time of doing taxes, correct? It's not something I have to pay right up front when closing the sale of my house. It's just added to my income for the year, correct?

[Mr Tonka]

http://www.bankrate.com/finance/taxe...me-sale-1.aspx

Be sure to make it down to partial exclusion and special circumstances.


Whatever you do owe, will be due when you file that year's tax return.

[enron29]

Originally Posted by Mr Tonka

http://www.bankrate.com/finance/taxe...me-sale-1.aspx

Be sure to make it down to partial exclusion and special circumstances.


Whatever you do owe, will be due when you file that year's tax return.

Thanks. Again, is assuming that the fees and stuff that I pay on closing on the newly constructed home would help bring this number down as well?

[stevenc]

^ No. They are seperate transactions. The capital gains will be calculated using only the old house information.

You will get a deduction for interest and property taxes on the new house as part of your regular tax return but that will not offset the capital gain.

[sygazelle]

Be sure to include all the expense you had for improving the house you are selling. Also, you may include commissions and fees you paid to sell your house. It goes something like this:

Purchase Price + Improvements = Basis
Sale Price – Basis – Cost of Sale (commissions and fees) = Capital Gain


If the resulting capital gain is a lot, you could delay selling until you've lived in it for 2 years. That way you pay no capital gain as others have told you. If waiting is not a practical solution, calculate the capital gain tax and be prepared to pay it when you file your taxes for 2017.

Having capital gains is such a problem. What a hassle!

[omasou]

Won't he need to make an estimated payment. If he waits until next year he could be hit w/interest and penalties, correct?

[Mr Tonka]

Originally Posted by omasou

Won't he need to make an estimated payment. If he waits until next year he could be hit w/interest and penalties, correct?

Not that i'm aware of. If you owe or are getting a refund, no interest or penalties are levied on the taxpayer or IRS.

If he EXTENDS without an estimated payment and ends up owing; yes, penalty and interest will apply.

[RickFLM4]

Google "IRS Publication 523"

[Joekerr]

Interesting to see the differences between countries. Although in all likelihood you don't have a capital gain over $500K, unless you own a pretty nice house to begin with, I do like our system better where the whole gain (no limit) is exempt, provided it is your principal residence. And you only have to live in it for part of the year for it to be your principal residence (few other requirements as well, but not onerous).

Then again, our personal tax rates are higher, so that sours it somewhat.

[omasou]

IRS Publication 523...

https://www.irs.gov/publications/p52...blink100011875

If you have gain that can’t be excluded, you generally must report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses. Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. For more information, see the Instructions for Form 8949.
Complete Schedule D (Form 1040), Capital Gains and Losses. Using the information on Form 8949, report on Schedule D (Form 1040) the gain or loss on your home as a captial gain or loss. Follow the Instructions for Schedule D when completing the form. Note you won’t be able to use Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, for your return.

If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. See Pub. 505, Tax Withholding and Estimated Tax.

[EDIT] Don't forget about state and local!

Double check w/an accountant.

[Mr Tonka]

^^ Yes. Do this for sure.

My wife is a CPA, but i am not. lol

[bimmer456]

Originally Posted by enron29

Can someone school me on capital gains? Possibly looking at building a new home, and selling current. Depending on when we close, it may be just short of a year, or it may be after the 1 year + a day. I'm just trying to get an idea of how big the hit is going to be on taxes. I've read you can deduct a lot of fees from the sale of your house plus some improvements you have put into it. Also, there will be fees and such that can be deducted from the purchase of the new home, correct? So these will be deducted to hopefully offset the capital gains tax owed.

Am I thinking through this correctly? Would love some input on this.

Thanks.

I believe it's something like $250 K or maybe what the earlier poster said. You do have to factor in higher property taxes if you're in California, however, unless you sell your house and buy another at the same price, then your property taxes don't go up and are based on the locked in rate from when you purchased the home that you sold.

[RickFLM4]

If the property happened to be inherited (which would help explain the concern about gains in such a short period) you'll need to start by looking into the tax basis of the property when inherited. It is unlikely to be zero even though nothing was paid for it. Read up on what you can, but as others suggested speak with a tax CPA with whom you can share all the details.

[Maynard]

Would it help to structure the sale as a rent-to-own for the first year, to push the closing date back a year or two?