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Just a question, what is "significant?" I do believe in all this that if there were upgrades done, and one has receipts, an allowed reason to need to sell, that there are exceptions to this also and possibly even costs incurred to purchase and sell the property are calculated in to the gain. Don't quote me, I have read quite a bit on line from various places and it is a lot if information. In the end, it will be what it will be.
significant can be any number you want, but here's a very simple example:
*You buy your home today for $200,000
*very few if any of your closing costs for this purchase will be deductible when you sell later (consult your CPA)
*You spend $100,000 updating the home, with receipts as you noted.
*You sell the house for $450,000. Your deductible costs to sell are $30K
*You have "gained" $120K (450-30-100-200)
-IF you lived there 5 years, you pay no capital gains tax.
-IF you move BEFORE 5 years, there are a couple of hardship exceptions where either you pay NO tax, or it is prorated (it used to be prorated for all, but this was done away with several years ago)
- IF you move before 5 years without hardship, then you pay the prevailing capital gains rate on the $120K gain. For most people, they'll be in the 15% CGT bracket, so of the gain you would pay $18K and still net 102K of gains.
Sec. 1402. Exclusion of gain from sale of a principal residence.
Current law: Under current law, a taxpayer may exclude from gross income up to $500,000 for
joint filers ($250,000 for other filers) of gain on the sale of a principal residence. The property
generally must have been owned and used as the taxpayer’s principal residence for two out of the
previous five years. A taxpayer may use this exclusion only once every two years.
Provision: Under the provision, a taxpayer would have to own and use a home as the taxpayer’s
principal residence for five out of the previous eight years to qualify for the exclusion. In
addition, the taxpayer would be able to use the exclusion only once every five years. The
exclusion would be phased out by one dollar for every dollar by which a taxpayer’s adjusted
gross income exceeds $500,000 ($250,000 for single filers). The provision would be effective
for sales and exchanges after 2017.
I read it this way: they are trying to get around people who own multiple properties and periodically take one over, so that they can meet the 2-year rule, sell it then get the tax break. Then evict one of their other tenants, take over that house and do it all over again. Now they have to claim that one property as their principal residence for 5 years out of the previous 8.
And if they are making boatloads of money in real estate anyway, then they can't claim the tax break at all.
It should have a greater effect on speculators and investors than it does on individual homeowners. It may serve to depress home values since they become less attractive as an investment without the government handout.
significant can be any number you want, but here's a very simple example:
*You buy your home today for $200,000
*very few if any of your closing costs for this purchase will be deductible when you sell later (consult your CPA)
*You spend $100,000 updating the home, with receipts as you noted.
*You sell the house for $450,000. Your deductible costs to sell are $30K
*You have "gained" $120K (450-30-100-200)
-IF you lived there 5 years, you pay no capital gains tax.
-IF you move BEFORE 5 years, there are a couple of hardship exceptions where either you pay NO tax, or it is prorated (it used to be prorated for all, but this was done away with several years ago)
- IF you move before 5 years without hardship, then you pay the prevailing capital gains rate on the $120K gain. For most people, they'll be in the 15% CGT bracket, so of the gain you would pay $18K and still net 102K of gains.
It won’t let me rep you again but thank you for this concise and non-wild eyed explanation
I do believe in all this that if there were upgrades done, and one has receipts, an allowed reason to need to sell, that there are exceptions to this also and possibly even costs incurred to purchase and sell the property are calculated in to the gain.
That's basically true but let me clarify a bit.
At it's simplest capital gains is the sale price of the property less the purchase price (basis) of the property.
That difference can be reduced by a variety of factors.
At the beginning some of the costs related to purchasing the property can be added to the basis and reduce the gain.
While you own the house any "capital improvements" increase the basis, thus reducing the gain.
When you sell the house the commission and some of the costs of sale also serve to reduce the gain.
The IRS has an explanation of "Basis Adjustments" in Publication 523 Sale of Your Home (start on P. 11):
What are you talking about? It seems like you're just making stuff up at this point. I didn't see a reference to exemptions for owning a home less that 5 years.
First of all it's not a matter of years of ownership but rather how long the home has been a primary residence. Secondly, it's a capital GAINS tax, not a tax on the sales price of your home. Therefore it will only impact people with significant gains and if a person has significant gains they need to put that money away at closing to pay the piper when the bill is due.
True. But it's a tax increase on the middle class, particularly seniors. They're aiming at baby boomers, to try to make up the huge deficit that's coming down the pike.
This is bad law. An older person who has lived in her home for 40 years needs to sell to downsize, but may have to pay a tax on that, like she's a business person? That's just wrong. And harmful. Because probably one of the reasons she's selling is to live on the money.
True. But it's a tax increase on the middle class, particularly seniors. They're aiming at baby boomers, to try to make up the huge deficit that's coming down the pike.
This is bad law. An older person who has lived in her home for 40 years needs to sell to downsize, but may have to pay a tax on that, like she's a business person? That's just wrong. And harmful. Because probably one of the reasons she's selling is to live on the money.
Some of you still do not understand the change. If you live in the home 5 years or longer, you have the exemption of half a million for a couple, a quarter million for a single person.
The older person who has lived in the home for 40 years (that is more than 5 years), falls into the exemption as in the past.
What the new law is doing, is saying you have to live in it for 5 years instead of the present 2 years. It is being done, to cut flippers off at their knees. A lot of people buy homes to fix up and then sell, and with the two year law when they are finished with the upgrades at the end of 2 years, they sell and in most cases got their profits tax free. Now they will have to wait 5 years to sell and get the exemption. This is to cut the number of homes bought by flippers, and give a better choice of homes to the general public. The new law only allows the deduction every 5 years rather than the current 2 years. This again is aimed at people that buy fix up etc., and every 2 years sell and take the profits income tax free. They have to wait 5 years before they can do it again if the proposed law passes.
Few home owners other than flippers will be effected as most hold 5 years or longer. And there is a hardship provision available for certain situations.
Actually it will help stabilize the home real estate market, and allow a larger choice of homes to home buyers.
Some of you still do not understand the change. If you live in the home 5 years or longer, you have the exemption of half a million for a couple, a quarter million for a single person.
The older person who has lived in the home for 40 years (that is more than 5 years), falls into the exemption as in the past.
What the new law is doing, is saying you have to live in it for 5 years instead of the present 2 years. It is being done, to cut flippers off at their knees. A lot of people buy homes to fix up and then sell, and with the two year law when they are finished with the upgrades at the end of 2 years, they sell and in most cases got their profits tax free. Now they will have to wait 5 years to sell and get the exemption. This is to cut the number of homes bought by flippers, and give a better choice of homes to the general public. The new law only allows the deduction every 5 years rather than the current 2 years. This again is aimed at people that buy fix up etc., and every 2 years sell and take the profits income tax free. They have to wait 5 years before they can do it again if the proposed law passes.
Few home owners other than flippers will be effected as most hold 5 years or longer. And there is a hardship provision available for certain situations.
Actually it will help stabilize the home real estate market, and allow a larger choice of homes to home buyers.
Good information, thanks. We purchased and finalized a house in 2/17 and plan to sell fairly soon. Please tell me that we can still use the two year capital gains tax exemptions. Won't the five year rule apply only to properties purchased after 2017? This is something I'm not clear on.
Good information, thanks. We purchased and finalized a house in 2/17 and plan to sell fairly soon. Please tell me that we can still use the two year capital gains tax exemptions. Won't the five year rule apply only to properties purchased after 2017? This is something I'm not clear on.
Unfortunately the proposed tax plan applies to ALL SALES taking place after 12/31/2017. That's my objection to this, that there is no 'grandfather' clause.
We bought our home in 2014 to be near an elderly parent who needed our assistance. He died in late 2015; it took over a year to settle his estate. We have no reason to keep this home now that he is gone and his estate is settled, but our options are to either keep the home until 2019 or sell and pay tax on a substantial capital gain.
Why are people so eager to punish flippers? It seems like they are doing a service in taking ugly decrepit houses and making them desirable. If they get to use the capital gains rate for their improvements they are probably passing along part of that so-called windfall to the buyer, real estate sales industry, materials providers, etc. Just because some people don't like the idea of the astute "flipper", why make it tougher on everyone else?
BTW, any couple that makes over 500K profit on a home within 2 yrs had to have been pretty dang lucky or pretty darn smart...or pretty sneaky and will be found out, lol.
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