Author Topic: capital gains on home question  (Read 1799 times)

BooksAreNerdy

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capital gains on home question
« on: August 19, 2014, 08:09:19 PM »
We are listing our house tomorrow.

I know we would have to pay taxes on capital gains if we dont meet the following critera- personal residence for 2 years with less than $500k of improvements.

We have owned the land since April of 2012. Construction of home started sept 2012. Home finished march 2013.

So do the gains count on the improvements to the land, and thus we have met the 2 year window? Or does the clock start when we moved into the house?

If it is the latter, how much are we going to owe? Do we have to prove how much we spent on land and home, then subtract that from the sales price to figure what they will tax? Does the agent commission count as part of the sales price?

BooksAreNerdy

  • Bristles
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Re: capital gains on home question
« Reply #1 on: August 20, 2014, 05:40:12 AM »
Perfect, thank you! Very clear! Will I need to provide statements proving build cost?

Fishingmn

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Re: capital gains on home question
« Reply #2 on: August 20, 2014, 06:45:55 AM »
Perfect, thank you! Very clear! Will I need to provide statements proving build cost?

I believe the tax forms just ask for your cost basis. You would only need statements/records to "prove" your cost basis if you were audited so you do want to have them available.

johnhenry

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Re: capital gains on home question
« Reply #3 on: August 20, 2014, 08:19:14 AM »
It needs to be your primary residence for at least 2 of the last 5 years.  If you didn't move in until March 2013, then that is when it became your primary residence.  If you sell before it is your primary residence for two years, then you will owe taxes on the capital gains.  That would be the sale price, minus land+build costs, minus sale expenses (including commissions).  Details can be found here:

http://www.irs.gov/pub/irs-pdf/p523.pdf

Agreed, and don't forget to include "improvements" in your cost basis.  If you moved in during March 2013, but continued to have expenses for fixtures, etc along the way after you moved in, all those costs get added to your basis, which will reduce your capital gain if you don't meet the 2 of 5 year exclusion.  You can't count maintenance cost, but improvements.

Also read page 14, "Reduced Maximum Exclusion" of IRS pub 523.  If you are moving due to health, new employment (50 miles), or unforeseen circumstances, you may still be able to avoid the full capital gain tax bill.

With that said, if there's any way you can wait until you meet the exclusion, that's the best option because any other option could require much calculating and paperwork.

BooksAreNerdy

  • Bristles
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Re: capital gains on home question
« Reply #4 on: August 20, 2014, 01:59:36 PM »
Excellent, thanks for the the help! I'd rather not have to do all the paperwork, I have a feeling our gain will be very small, if anything. We are moving partly due to a future job relocation, but it won't happen while we are still in this house, most likely. It will be interesting to figure exactly what we spent and see if there is much gain.