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I am considering selling two houses in CA within the next few years and probably moving to a different state. I am trying to understand what is the law regarding taxes on capital gain. I lived in the first house for the last 12 years (my primary residence). The second house I bought for my parents in 2009. They never lived in that house. It was vacant all that time. I paid the minimal gas/water/electric bills. The houses are within 10 minutes drive from each other. Suppose that I move out of my first house (primary residence) right now and keep it vacant for a couple of years. In the mean time, I will live in the second house and use it as my primary residence for the next two years. Will I be able to avoid capital gain taxes on both houses if I sell them simultaneously in two or three years? Or do I have to sell the first house first, and then the second after living in it for two years? Any advice? I plan to buy a house in a different state after that. I do not know if my age is relative, but I am well below 55. I think that it was an important factor in the past.
it won't fly. you can no longer take a rental or 2nd home turn it in to your primary and reap the tax free exclusion. things are pro-rated now.
so lets say you owned the second home a total of 6 years and you live in it as a primary for two years and you sell it. since 2 years is 1/3 of the 6 years you owned it in total you would only get to take 1/3 of the capital gains exclusion amount not the whole thing. you also have to sell the other house within a rolling 5 year time frame or blow that.
sell your house now move into the other - sell that one in two years $250,000 tax free if you are single, $500,000 if you are married. You can use this once every 24 months.
wrong ... that law was changed about 8 years ago.
... everything that wasn't a primary from day one is now pro rated. your link does not pertain to anything that was a rental , investment property or 2nd home before you made it a primary.
I would not be on the irs website if it was not true.
Question: If I exclude the gain on the sale of my former principal residence this year, can I take the exclusion again if I sell my new principal residence in the future?
Answer:
You can exclude gain from the future sale of your principal residence (within the limits of the exclusion) as long as you satisfy the ownership and use tests and have not excluded gain from the sale of a former principal residence within the two-year period ending on the date of the sale. As long as you otherwise meet the requirements of the exclusion, the number of times you claim the exclusion is not limited.
you are not reading it correctly. that pertains to selling a home that was your principal residence , AND THEN FIRST BUYING ANOTHER PRINCIPAL HOME after the fact that you sold the first one. .
it does not pertain to 2nd homes you already owned and were pre-existing either as rentals or vacation homes.. if you lived in that home first for 2 years then made it a rental it would have worked fully. but the fact he owned it while it was not a primary alters the outcome.
Second Homes
The Housing Assistance Act of 2008 put the kibosh on being able to exclude $250,000 or $500,000 from capital gains tax on the sale of a second home, . You may qualify for a partial exclusion, however, if you lived in the residence for two years or more and treated it as an investment property the rest of the time. For example, if you owned the property for five years, and if you rented it out for the first three years then moved in yourself for the remaining two years, you would be able to exclude 40 percent of your profit from capital gains tax because you used the property as your primary residence 40 percent of the time. If you lived in the property for two years then rented it out for three years, however, you would qualify for the exclusion because it was your primary residence first.
Last edited by mathjak107; 08-22-2014 at 05:25 PM..
Are you sure you will have a gain on the 2009 house? Most property in California is not that much above 2009. You can deduct the cost of the sale before looking at a gain.
Though you didn't actually rent it out, have you been depreciating it? Claiming it as a loss on an investment home? That will impact how it is treated tax wise.
I would not be on the irs website if it was not true.
Question: If I exclude the gain on the sale of my former principal residence this year, can I take the exclusion again if I sell my new principal residence in the future?
Answer:
You can exclude gain from the future sale of your principal residence (within the limits of the exclusion) as long as you satisfy the ownership and use tests and have not excluded gain from the sale of a former principal residence within the two-year period ending on the date of the sale. As long as you otherwise meet the requirements of the exclusion, the number of times you claim the exclusion is not limited.
one of the problems with asking for advice on the internet is folks only know what they know and little about what they don't know.
we all have bits and pieces of things we know something about but only have half a story. for the real facts always consult a pro who specializes in that area . to many times the info you get on the internet is not true in your case .
i knew about the change because the new law was passed right after we bought a 2nd home we were eventually going to retire to. bad move tax wise and poor timing in that respect for us. we ended up selling it anyway as we realized we didn't want to retire somewhere rural . ....
Last edited by mathjak107; 08-23-2014 at 06:06 AM..
Honestly, OP, please ask a CPA or tax attorney about this. It's pretty complex and the last thing you want in your life is IRS drama.
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