Author Topic: Selling two houses in nine months: tax question  (Read 3985 times)

onemorebike

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Selling two houses in nine months: tax question
« on: September 05, 2014, 07:06:39 PM »
I owned two houses, one rental and one my permanent residence. We sold the first, which was just under my name and we plan to sell the second which is under my wife and I's name in about six months. My first Realtor mentioned that I could avoid taxation on the second sale by putting the second house only in my wife's name. I live in Colorado. Anyone out there that understands this well enough to help me understand what the problem is and if this approach (putting it just in her name) would help our tax situation?

Thanks in advance!

Onemorebike

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Re: Selling two houses in nine months: tax question
« Reply #1 on: September 05, 2014, 07:31:48 PM »
Sounds like the realtor is talking out of their ass.

Permanent residence is tax free if gain is <$250K or $500K if married. Rental is a taxable gain unless:

If rental was a personal residence during 2 of last 5 years, and even then the depreciation/business portion on the rental would be taxable. It doesn't matter if its you or your wife or both.

onemorebike

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Re: Selling two houses in nine months: tax question
« Reply #2 on: September 05, 2014, 07:40:00 PM »
I avoided cap gains on the first house because we lived in it two out of five. I found something online along the lines of "You must have not excluded the gain on the sale of another home within two years prior to this sale." I don't fully understand how this all applies, which is why I'm asking.

Cheddar Stacker

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Re: Selling two houses in nine months: tax question
« Reply #3 on: September 05, 2014, 08:16:53 PM »
You can sell 2 tax free in the same year. Live in house 1 from 2009-2010. Move into house #2 i in 2011 and try to sell house #1. Fail. Fix up house #2 and sell them both in 2013. Both are tax free if under the limts. Rental property brings an entirely new wrinkle though.

onemorebike

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Re: Selling two houses in nine months: tax question
« Reply #4 on: September 06, 2014, 06:25:20 AM »
Cheddar, so the first house was a rental for the interim, but one I lived in two of five years before selling. It sold at 233000 and this next house probably around 250-260. We are married. Am I worrying too much? (Also, I didn't understand your "fail" comment or why fixing up house number 2 was relevant?)

Cheddar Stacker

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Re: Selling two houses in nine months: tax question
« Reply #5 on: September 06, 2014, 07:10:36 AM »
Fail meant house 1 didn't sell right away so you end up selling 2 in one year.

Search michael kitces. He has a nice long write-up about this that someone posted here a while back. I think it was Nords.

onemorebike

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Re: Selling two houses in nine months: tax question
« Reply #6 on: September 06, 2014, 09:24:27 AM »
Cheddar,

Great article, thanks for the link. According to Michael my realtor was on point:

Quote
"The capital gains exclusion is only allowed once every 2 years. Thus, the partial exclusion still cannot be used if another exclusion had been claimed for another sale in the past 24 months, and in the event of a married couple the full $500,000 exclusion is only available as long as neither spouse has used it in the past 2 years (if one spouse sold a home recently and the other did not, the second spouse can still use his/her individual $250,000 exclusion). On the other hand, as long as “no more than once every 2 years” requirement is met, there is no limit on home many times an individual can take advantage of the primary residence capital gains exclusion throughout their lifetime!"

A few details that might clear this up, the first house was only in my name, our second house is in both of our names. I believe my realtor was suggesting that we remove my name from the current mortgage/house before selling so that technically my wife would be selling her house (using her once every two year opportunity to exclude cap gains) and I would have sold my house (accessing my one time every two year exclusion) and therefore we'd both be able to claim the exclusion from capital gains tax. Does that work even if we file jointly?

onemorebike

p.s. It might help to know the first house was purchased at 105000 and sold for 233000 and the second house purchased for 210 and hoping to draw about 250-260 - so even if do have to pay, at least it will be on the smaller gain.

Cheddar Stacker

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Re: Selling two houses in nine months: tax question
« Reply #7 on: September 06, 2014, 11:51:49 AM »
I'm gonna have to read it and get back to you. I don't deal with this stuff enough to answer your specific questions.

waltworks

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Re: Selling two houses in nine months: tax question
« Reply #8 on: September 06, 2014, 04:23:24 PM »
You might be able to pull it off but for what? 15% of $50k is only $7500 and I'm guessing that changing the names on the deed to dodge the tax is probably not legal. You might not get caught but I sure as hell wouldn't risk it.

-W

onemorebike

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Re: Selling two houses in nine months: tax question
« Reply #9 on: September 06, 2014, 09:25:52 PM »
Waltworks, I'm not certain it is illegal, but definitely why I'm asking here to get a better understanding before we move into the second selling phase.

Nords

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Re: Selling two houses in nine months: tax question
« Reply #10 on: September 06, 2014, 11:12:16 PM »
Waltworks, I'm not certain it is illegal, but definitely why I'm asking here to get a better understanding before we move into the second selling phase.
This falls into the category of "aggressive accounting", which while possibly perfectly legal may require vigorous defense.  The IRS (and the state) will understand perfectly well why you're transferring the title to your spouse, and will bury you in other legal statutes & precedents to "prove" that you're wrong.

While CheddarStacker is researching the CPA issues, I know a good lawyer in Castle Rock...