Reducing Tax On Sale Of Home
17 months ago I sold my primary residence and took the exclusion and paid no tax on the profit. I then purchased one property with two homes on it. I am refurbishing one home while living in the other. I have had the property split, refinanced the loan leaving only the refurbished home with a mortgage, will move into the refurbished home and sell the other. Is there a way to reduce the amount of taxes that I will pay on the sale of this second home?
Sounds like a smart investment, congratulations. To answer your question, have you heard of a 1031? If a 1031 is not an option it sounds like you have plenty of angles to lessen Uncle Sam's load. For starters you have owned the house for more than a year. Secondly, I am assuming you have kept records of the worked performed. Talk to an accountant, they always are up for a good challenge.
Matt
Quote:17 months ago I sold my primary residence and took the exclusion and paid no tax on the profit.Let's say that you sold your former primary residence on March 15, 2002. You are not allowed to take another capital gains exclusion on the sale of your primary residence within the next 24 months. For you, this means that you can do not qualify for the capital gains exclusion on the sale of your new primary residence if you sell before March 15, 2004. If you do sell earlier, normal capital gains taxes apply to the sale profits.
Quote:I then purchased one property with two homes on it. I am refurbishing one home while living in the other. I have had the property split, refinanced the loan leaving only the refurbished home with a mortgage, will move into the refurbished home and sell the other. Is there a way to reduce the amount of taxes that I will pay on the sale of this second home?To qualify for the capital gains exclusion on the sale of your new primary residence, you must both own AND occupy the property as your primary residence for 24 months. You will not meet this ownership and occupancy requirement for another 7 months. If you can hold off on your sale and move for another seven months, you once again qualify for the capital gains exclusion.
Otherwise, if you sell earlier, your profits are taxable capital gains. Since the property is your primary residence, a 1031 exchange is not applicable.
Dave
Does this actaully count as a primary residence since he is living in the other unit, and they will now have two seperate addresses?
The only way I see it is to hold the property till the 24 months ends, and be living in the property that will be for sale with the new address. Then at 24 months sell that property and move into the other one. If you show the first one as you primary residence for the last few months you will not get to 24 months. Or if you rent the second property you will not be able to deduct.
As I read SteveH's original post, he has been living in the house (as his primary residence) that he wants to sell for 17 months. To qualify for the capital gains exclusion, he needs to continue occupying this house as his primary residence for another 7 months.
After he sells the house he is presently occupying, SteveH plans to move into the house he has been refurbishing.
So, in answer to your question: Yes, it does appear that SteveH can qualify for the capital gains exclusion on the sale of his primary residence but only if he continues to occupy it for another 7 months.
Thank you for all of your comments. This helps. Looks like I am going to pay capital gains as I can not hold off on the sale.
Any ideas on this situation. In the original transaction I paid one amount for both houses. (The houses sit on a corner and have two different addresses.) How would I arrive at the original cost of one house to figure the capital gain?, just divide the original price by 2? If it makes any difference, I do plan on living in the refurbished house well beyond the 24 months.
Assuming that the lot sizes for each home are approximately equal after your subdivision, and assuming that you did not make any capital improvements to the property you are selling, then dividing your original cost in half seems appropriate.