Will I have to pay capital gains taxes on the sale of my home?
This is the first home my husband and I have owned, it’s a condominium that was purchased 10 months ago. We just experienced a flood due to an improperly installed valve. We are selling the condo back to the builders (as it was brand new when purchased and this was VERY unforseen). We will be purchasing a new home and rolling all equity into it (there will be about $20,000 in equity with the buy-back due to current market value). Will we have to pay capital gains on the $20,000? Will this fall under "Unforseen Circumstances" and qualify for a lower exclusion? Or is there something else??? THANKS!
Assuming that you mean you are selling it for $20000 more than you purchased it for and that you have done no improvements since buying it…..
Then I would talk to a CPA, this could be a lawsuit settlement that might not be taxable or like you say you could also qualify under the unforeseen circumstances.
But if you do have to pay capital gains it would be on gains not equity. If you had paid cash and the builder gave you the same cash back then there is no gain. If you made a "profit" of $20000 but are leaving behind $15000 in drapes then your gain would be $5000.
January 31st, 2010 at 10:08 pm
it may be different where you live (Im in AR) but it has to be your primary dwelling for 2 years to avoid the taxes
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January 31st, 2010 at 10:53 pm
Captial gains is not calculated by equity (value less debts) but on the increase in value, meaning how much more you sold it for compared to how much you purchased it for.
So, if you sold it back for more than you purchased it, there is no Gain, therefore no tax.
If you did sell it back for more, I still do not believe you will have to pay gains tax as it is your personal residence.
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January 31st, 2010 at 11:40 pm
Sorry, but in order to not pay taxes you have to have lived in the property for 2 years.
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February 1st, 2010 at 12:16 am
Better see a CPA to get accurate information on this.
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February 1st, 2010 at 12:35 am
Assuming that you mean you are selling it for $20000 more than you purchased it for and that you have done no improvements since buying it…..
Then I would talk to a CPA, this could be a lawsuit settlement that might not be taxable or like you say you could also qualify under the unforeseen circumstances.
But if you do have to pay capital gains it would be on gains not equity. If you had paid cash and the builder gave you the same cash back then there is no gain. If you made a "profit" of $20000 but are leaving behind $15000 in drapes then your gain would be $5000.
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February 1st, 2010 at 1:07 am
Yes you will. You must occupy the residence a minimum of 24 months from one closing date to another to be exempt from capital gains taxes…and this only applies going from one primary residence to another.
The IRS has ZERO loophole for this…24 months is the loophole, and they are very, very serious about those dates…miss it by one day, and you will pay the tax. There are no exceptions to this. The IRS doesn’t care why you had to sell.
Unfortunately, you are a long way off from 24 months.
I would try to get a WRITTEN agreement from the builder that they will pay this for you when tax time comes, since it’s their fault you are moving anyway. However, don’t be suprised if they refuse to do so….most builders would just fix the property extensively, because all the law requires is for you to be "made whole", and not buy it back at all. Be sure to get an appraisal that you pay for to make sure the deal is fair.
Taxes on that amount will be close to 30%….that is a big chunk.
It would not be considered a lawsuit settlement, because there is no lawsuit or pending legal action, and nothing has been filed in a court of law.
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February 1st, 2010 at 1:53 am
You should check with your accountant but the general rule is that you must have owned the home for 5 yrs and lived in it as your principal residence for 2 of the 5 yrs. If that were the case you would be entitled to a $500,000 exemption on captiol gains. Check with your accountant for any loop holes.
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