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I'm stumped by this tax question
Posted on 3/19/14 at 4:45 pm
Posted on 3/19/14 at 4:45 pm
I have someone who is selling their house for $125,000 and then moving in with their child. They are putting $100,000 into an addition to their kids house where they will now live. Is the sale of the home taxable?
3
Posted on 3/19/14 at 4:56 pm to Broke
quote:
Is the sale of the home taxable?
If they have owned it for two years, it shouldn't be... At least that's how I thought it was.
However, they will have that wonderful Obamacare tax
Posted on 3/19/14 at 5:04 pm to Lsut81
They aren't putting the money back into a home owned by them though. It's an odd situation
Posted on 3/19/14 at 5:17 pm to Broke
I believe that up to $250,000 of capital gains on the sale of your primary residence is excluded from tax.
Posted on 3/19/14 at 5:19 pm to Broke
quote:
They aren't putting the money back into a home owned by them though. It's an odd situation
I'm pretty sure if it has been your primary home for longer than 2yrs, you don't have to put the money back into a new home for it to be tax free.
ETA
quote:
Individuals can exclude up to $250,000 in profit from the sale of a main home (or $500,000 for a married couple) as long as you have owned the home and lived in the home for a minimum of two years. Those two years do not need to be consecutive. In the 5 years prior to the sale of the house, you need to have lived in the house for at least 24 months in that 5-year period. In other words, the home must have been your principal residence.
LINK
This post was edited on 3/19/14 at 5:21 pm
Posted on 3/19/14 at 5:20 pm to Broke
They likely qualify for a Section 121 exclusion. It allows up to $500,000 of gain from the sale of a principal residence to be excluded from income. The home sold must have been owned for at least two years, and it must have been the taxpayers' home for at least 2 of the 5 years preceding the date of sale.
Posted on 3/19/14 at 9:34 pm to Poodlebrain
This is all based on the assumption that they have not used up their lifetime exclusion amount. The $250K is a lifetime time amount (cumulative for all sales). At least that's how I remember it. I'm not sure that anyone keeps up with this personally. Furthermore, you'd have to be pretty damn lucky the profit $250K on the purchase and sale of a home(s).
Posted on 3/19/14 at 10:39 pm to Taxing Tiger
No lifetime maximum exclusion or maximum numbers of sales. The lifetime maximum was for the old rules.
Posted on 3/20/14 at 8:48 am to tigeryat
Nice. So they are good.
Posted on 3/20/14 at 8:51 am to tigeryat
I think there is some confusion between the old and new rules.
To get the 250K/500K exclusion, you have had to live as your primary residence in the house 24 of the last 60 months. You don't have to put the money into a new house. There is also no lifetime limit, however, you can only take advantage of this rule generally once every two years (with a few exception).
Now, as to the addition, who is going to "own" that? It sounds to me that perhaps the parents are gifting 100K to the kids. If that is the case, the parents, may, depending on how this is structured, be required to file a gift tax return. Assuming they have not hit their lifetime maximum for gifts, they would not owe any tax, but a return MAY be required. Just wanted to point that out.
To get the 250K/500K exclusion, you have had to live as your primary residence in the house 24 of the last 60 months. You don't have to put the money into a new house. There is also no lifetime limit, however, you can only take advantage of this rule generally once every two years (with a few exception).
Now, as to the addition, who is going to "own" that? It sounds to me that perhaps the parents are gifting 100K to the kids. If that is the case, the parents, may, depending on how this is structured, be required to file a gift tax return. Assuming they have not hit their lifetime maximum for gifts, they would not owe any tax, but a return MAY be required. Just wanted to point that out.
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