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The OP's understanding is on a par with most of the people who post about tax law.
Thankfully my CPA is not one of them!
I wouldn't even ask this question in a forum. In a forum you are guaranteed to get multiple, conflicting advice from people many who know less than you do.
You know you can get a consultation with a CPA on an hourly basis, maybe even a half-hour. Bring all your data and facts with you.
I wouldn't even ask this question in a forum. In a forum you are guaranteed to get multiple, conflicting advice from people many who know less than you do.
You know you can get a consultation with a CPA on an hourly basis, maybe even a half-hour. Bring all your data and facts with you.
There is no harm in someone asking a question. There have been instances on here where someone was given faulty advice by their CPA or tax accountant...and they got correct information by asking a question on CD. Of course, consulting with an experienced professional is always in order. Even then, however--as with everything in life--there are no guarantees.
Property (Basis, Sale of Home, etc.)
Question: How do I report the sale of my second residence?
Answer:
Your second home (such as a vacation home) is considered a personal capital asset. Use Schedule D (Form 1040), Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets, to report sales, exchanges, and other dispositions of capital assets.
Additional Information:
Publication 527, Residential Rental Property (Including Rental of Vacation Homes)
Instructions for Form 8949, Sales and Other Dispositions of Capital Assets
Publication 587, Business Use of Your Home
Tax Topic 409 - Capital Gains and Losses
Instructions for Schedule D, Capital Gains and Losses
Tax Topic 703 - Basis of Assets
Publication 544, Sales and Other Dispositions of Assets
Category: Capital Gains, Losses, and Sale of Home
Subcategory: Property (Basis, Sale of Home, etc.)
There are a number of articles which provide information that doesn't match the IRS requirements. I've found a number of them myself. Regarding the sale of a second residence, that clearly doesn't meet the test of it being your principal residence as you can only have one principal residence at a time.
If you rent out a property but later convert that into your principal residence, that is different, too, as the IRS clearly spells out that rental or business use of a home makes it subject to the calculation of the non-residence portion for capital gains tax. From what I understand of your situation, you bought a property to become your principal residence but things didn't turn out that way initially. You didn't rent out the house or use it for business and later converted it into your principal residence. Under those circumstances, it appears that you are eligible for the full exclusion provided you have lived there for 2 of the last 5 years.
As I've advised in posts #22 & #29, just make sure to check with your CPA or tax lawyer to confirm your particular situation. I hope it works out for you.
One of the charts I put on there (couldn't make the link work) was from IRS. The examples were the same with the formula right on the forms. If you go to the information for those forms it does spell it out just as the tax firms information. Unfortunately.
The most maddening part for me is that that was not in effect when we bought it. Seems so unfair but then I knew of people selling houses and having large tax consequences only to have that change with the 2 out of 5 and $250,000 or $500,000.
Where I would question being able to walk is we did get the exemption when we sold the other house. We had lived in it over 17 years as primary. No question about that one. But five years of it were the same five years this one would have and I somehow think that would be caught.
I read it two ways also and was hoping to find out it is not tax. But I also am working on figures for the worst case and if it is better I can easily adjust to that.
One way I read it is the 2 out of 5 counts as people sometimes have a difficult time selling their houses and that covers that. I am hoping that would be the case but it seems there is no way to know for sure. I took a 2 hour on line CPA class on capital gains tax and even on that she talked of IRS worksheets that are easy to calculate but then you get to the bottom figure and there is NO information of where to put that figure on any of the forms. Two of those were sitting in front of me at the time. I had thought it was just me trying to determine what to do with the figure. It actually was at that point out of frustration I posted the question because I was wondering if anyone understood this stuff.
Thanks everyone, it will be interesting to see how it all turns out. Thank goodness I have time.
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