QUESTION
Will I get charged the capital gain if I sell my house to pay off my siblings to buy my mother's house for which I'm part owner per Mom's Trust?
Asked on Apr 01st, 2014 on Estate Planning - Michigan
More details to this question:
I have 3 siblings and I was appointed the executor of my mother's estate. I also worked on renovating the house for possible sale, hiring contractors to fix termite damages, converting an enclosed patio with tempered windows to increase the value (upgraded under roof to additional 500 sf), and doing a lot of the renovations on my own, putting in new doors, painting the house and installing flooring, all without taking any compensation for my work except for expenses. Because of all the renovations, I've changed my mind and would like to buyout my siblings and live there but in order to payoff them off I would need to sell my house which I owned for 17 years but haven't lived there until the 6 months. Can I be exempted from being charged the capital gains if I buy another home which I intend to live in (not investment property)?
9 ANSWERS
Commercial & Bankruptcy Law Attorney serving Powell, OH
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Ronald K. Nims
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The tax code doesn't look to the intended proceeds of the funds when determining whether you have a gain or whether is gain is taxable as a capital gain. If you're selling a house that you used as an investment property, if you're selling it for more than your basis (what you paid less any depreciation plus any improvements), you'll be taxed on the that gain. There is an exclusion in the tax code for the sale of your primary residence, part of the definition is that you have lived in that property for at least 2 of the past 5 years.
Answered on Apr 04th, 2014 at 1:54 PM
Taxation Law Attorney serving Glendale, CA
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Irsfeld, Irsfeld & Younger LLP
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"but haven't lived there until the 6 months." If you meant to write "but haven't lived there until the last 6 months." Then you will be taxed on the capital gain when you sell. If you meant that you lived there for 16+ years but moved out 6 months ago, then you can exclude $250,000 of your gain ($500,000 if you are married and file a joint return).
Answered on Apr 04th, 2014 at 6:41 AM
Commercial Attorney serving Chicago, IL
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Ashcraft & Ashcraft, Ltd.
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Up to $250,000 of the gain from the sale of single person's principal residence is tax-free. For certain married couples filing a joint return, the maximum amount of tax-free gain doubles to $500,000. The exclusion has a detailed set of rules for qualification. Besides the $250,000/$500,000 dollar limitation, the seller must have owned and used the home as his or her principal residence for at least two years out of the five years before the sale or exchange. In most cases, sellers can only take advantage of the provision once during a two-year period. There are other rules that apply if the property was converted to rental property, or investment property; if filing jointly and the one of persons recently used the exemption; if another residence was claimed for the exemption within the five year period
Answered on Apr 03rd, 2014 at 12:29 PM
No. If you'd lived in your old house for 3 of the last 5 years, any gain on that sale (up to $250K) would not be taxed, but because it appears you haven't been living in your other home, any gain will be subject to tax.
Answered on Apr 03rd, 2014 at 12:11 PM
Thomas Edward Gates
IRS rules require you living in the house for 3 out of 5 years. Since you have only lived there for 6 months, you will have to pay capital gains.
Answered on Apr 03rd, 2014 at 5:25 AM
Trusts Attorney serving Sacramento, CA
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Law Office of Victor Waid
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You need to consult your CPA for the answer to your tax question.
Answered on Apr 03rd, 2014 at 5:24 AM
Probate Attorney serving Newport, OR
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Minor, Bandonis & Haggerty P.C.
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No. The exemption from paying tax on the capital gain on the sale of your personal residence has changed from what it was 15 years ago; reinvesting the money in a new personal residence no longer matters. You exclude gain on the sale if you owned and lived in the property for two years out of the five preceding the sale.
Answered on Apr 03rd, 2014 at 5:24 AM
2 Awards
Speak with an accountant. It depends upon whether you are married and how much equity you have. There are tax exemptions up to $250,000 that could save you from paying capital gains when you sell a primary residence.
Answered on Apr 03rd, 2014 at 5:24 AM
Business Planning Attorney serving Livonia, MI
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Frederick & Frederick Attorneys at Law
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Your facts are a little hard to follow. In order to exclude gain on the sale of your residence, it had to BE your residence for at least 2 of the previous 5 years. It does not sound like that is the case for you. You may want to run your facts by a CPA to determine if there is any basis for excluding gain. Facts are critically important in cases like this.
Answered on Apr 03rd, 2014 at 5:23 AM