$250k tax deductible

jyeh74

New member
The capital gains tax deductible is if you buy a house and live in it for 2 of the 5 years, you get up to $250k capital gains tax free for primary residence.

What happens if you don't live in it for 2 years?  We are thinking of selling our house and it will be 2 years in Dec, so we will have lived in it for 21 months our of 24 months.

1) If we make under $250k in capital gains what happens?
2) If we make over $250k in capital gains what happens?
 
You have a $250k (if singe/head of household and $500k if married filing jointly) gain exemption if you have kept the property as your primary residence 2 out of the past 5 years.  Any amount above and beyond the $250k/$500k gain exemption will be taxed at your long-term capital gains percentage (it varies based upon your marginal tax bracket).  The time period would be from the close of escrow/recording of when you purchased the home to when you close the escrow on your sale (when the transaction is recorded).  It is not based upon when you list the home for sale.  Why not list it in Nov and close in Dec to get your 2 years to have a tax-free gain instead of missing out on it by a month or so?  If you do not meet that 2 year threshold then the gain will be taxed at your long-term capital gains tax (it would be ordinary income and taxed at your marginal tax bracket if you held it less than one year).  Remember that both the Feds and the State will tax you on the gain.  Let me know if you have any other questions.
 
Tyler Durden said:
irvineboy said:
The capital gains tax deductible is if you buy a house and live in it for 2 of the 5 years, you get up to $250k capital gains tax free for primary residence.

What happens if you don't live in it for 2 years?  We are thinking of selling our house and it will be 2 years in Dec, so we will have lived in it for 21 months our of 24 months.

1) If we make under $250k in capital gains what happens?
2) If we make over $250k in capital gains what happens?

Paging qwerty, USCTCPA or any other guys wearing green visors.
I don't wear a green visor, it's a carbon fiber racing helmet.  haha
 
There are conditions under which you can get a reduced exclusion if you lived there under 2 years:
A change in job location
Health issues
Unforeseen circumstances

Also, though not applicable to the situation at hand, the IRS changed the law several years ago to reduce the $250/500k exclusion by a ratio of time from 2009 on in which you did not live in the home.  E.g., if you owned the home for 5 years , lived in it for 2 years, and rented it out for exactly 3 years prior to sale (rented out after 1/1/2009), you would only get a 40% exclusion on your gain on the sale, up to the $250/500k limit.  The other 60% (and anything over the limit) would be taxable.  From a $ standpoint, this is a pretty big deal, albeit to not a lot of people. 

http://www.irs.gov/pub/irs-pdf/p523.pdf
 
if you do not meet the 2 year threshold, is the entire gain taxed? i heard its prorated. so if i live there 22 out of the 24 months, then wouldnt I get some sort of pro rate, if the expected gain is under $250k?
 
irvineboy said:
if you do not meet the 2 year threshold, is the entire gain taxed? i heard its prorated. so if i live there 22 out of the 24 months, then wouldnt I get some sort of pro rate, if the expected gain is under $250k?

You may be able to deduct some expenses, but all of your profit will be taxes 100%. No pro rate.
 
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