500k - married - owner occupant - at least 2 years
Up to these amounts in CAPITAL GAIN. So after you adjust for your basis in the property then you have what's left over in CAPITAL GAIN. This is what you would pay taxes on via a "Capital gains tax".
$100,000 purchase price
$3500 closing cost fees that are deductible
Basis after closing $103,500
Capital Gain Improvements:
In Ground Pool $10,000
Vinyl Siding $10,000
New Windows $5000
Miscellaneous upgrades $5000
Basis in property $138,500
Sale price after 3.5 years of living in the property as an owner occupant - $200,000
200,000 - 138,500 = $61,500
The $61,500 you would pay cap gains taxes on - not just the original purchase price of 100k - you add on to the BASIS over the years. HOWEVER - you've lived in the house for 3.5 years and because of the fact that you've been an owner occupant and lived in the premises for over 2 years - you're allowed up to $250,000 in capital gains - SO - you pay ZIPPO in cap gains in this example.
I'm not sure if there is a income limit on this exemption - check with CPA.
my understanding is that yes, you have to have lived in the home for 2 years (aggregate) out of the last 5 years (and here is the important part) as your PRIMARY RESIDENCE.
So you could live in it for 1 year, then rent it out for 3, and then live in it for the last year, and it would count as 2 years aggregate. But it has to be your primary residence, and then you are allowed a $250,000 deduction if single, and if married (and your spouse is also on the title) $250,000 additional for him/her.
but this can be a complicated issue, so always confer your tax professional.
Every case is different so check this out and see where you fit the profile.
I think what they are referring to is the capital gain on your primary residence of two years. And yes, this is true to my knowledge. I'm just a REALTOR so I will always cover myself with "talk to your accountant". But I know you have to have it as your primary residence for at least 2 years to qualify. The amount doubles to 500k if you are married. But again, confirm everything with an accountant before making a decision that has $1,000s in the balance!
Broker, CRS, GRI, ePro
Raving Real Estate
Laramie, WY 82070
The only person that should be advising you should have reviewed your tax returns and current financial situation. There are many variables that are unknown.
Consult a tax professional. And pay for the advice if needed. The value of well-intentioned but bad advice is...well...priceless.
"IRC Â§ 121. Exclusion of Gain from Sale of Principal Residence." This is the IRC code for the exclusion. As always, please contact your CPA for exact details. regards.
Tatiana, Realtors are getting spooked lately about giving advise on Trulia but Gail is correct in her response.
But, it's always best to consult your CPA about tax matters.