Capital Gains question
 

I sold my home in Ohio Jan 2017 and bought in The Villages. Now I want to sell and downsize. Is it true that I may get penalized with capital gains taxes because I sold 2 homes in less than 2 years? My deceased husband built our home in Ohio, so it appears I made a lot of profit because there was little labor costs incurred.

Now I am hesitant to sell. Any advice?

Don't ask here! Ask a TAX EXPERT! :ho:

Hello, cjh-ohio,

I will put my two cents worth in to try to help you, but first of all, the best advice I can give you is to meet with a CPA. (I am a retired English teacher who, for some reason, has an interest, and a bit of a feel, for how to manage taxes in order to protect investments, whether they are on paper or we are living in them. But I always run any questions past a CPA. I hope you will, too.)

Unless it has changed (and I don’t think it has) the Taxpayer Relief Act of 1997 allows $250,000 to be exempt from cap gain tax for a single person. The exemption is $500,000 for a couple. This has been for primary residence sales only. (But I do not know if the recent tax law changed that part.)

Keep in mind that the operative word there is ‘gain.’ It is not just the buy-sell part. I always keep a folder of any improvements done to our houses. Those costs can offset the gain. (I think the costs associated with the selling process also can be included to offset the gain.).

The sale of a secondary residence has meant a capital gain on all profit, none of those generous exemptions of the 1997 tax law change, but keeping those good records could help to close the gap for secondary residence cap gain tax, too. (Again, I do not know if that has been affected by recent tax law changes.)

You say here that you sold the Ohio house in January 2017 so that puts you past the two year mark for the sale of a primary residence. (if that is still the tax law.)

Having owned 9 houses, all primary residences except the one in TV, I well remember the days when capital gains tax was on all profits unless invested in a more expensive house. There are lots of McMansions in Midwest suburbs. Many were built as a result of corporate moves by people from larger, more expensive cities, especially in the late 80s and the 90s until the tax law changed in 1997. I must say I loved that tax law change. It freed a lot of people to live their lives and not to have to choose to either buy a too big house or turn all profits over to the government. After 1997, sellers could downsize and keep the change.

Oh my! If you are still reading, please forgive my tendency to write a dissertation sometimes — when a topic catches my attention on TOTV. Real estate and the stock market and taxes all happen to be among my favorite topics to discuss. (I have no idea why.)

Anyway, my best advice is the first advice I gave to you. Please see a CPA. Bob Bloom, CPA, who has advertised on here, is a good guy. I do not have his phone number but someone here should be able to share it. I recommended him to a friend in TV and she really liked him. He lives in TV and came to her house to help her. She was very happy with his work. And— this friend is one who knows her stuff. :) I suggest finding Bob Bloom if you want/need to talk to a CPA.

I wish you the best as you navigate through this.

Boomer

Forgive me but
 

You should visit an accountant and or a lawyer with a background in not only law, but accounting and perhaps inheritance.

Far as profit on your home in Ohio. The profit is not what you paid for it minus what you sold it for. Whatever money you put into the house, raises your cost so lowers your profit.

Far as downsizing, there is the cost of moving, sales expense, the hassle of packing, the expense of redecorating the new place.

Without details, WHICH YOU SHOULD NOT MAKE PUBLIC, no one can give you valid answers. Obviously, beware of ulterior motives of any advisor.

My opinion
 

No one can answer your question without more details. I would not publish those details.

Beware of ulterior motives of anyone offering advice.

You should contact an attorney with a background in accounting and estate law.

The profit on your Ohio property is not what you sold it for less what you paid for it years ago. There was improvement costs, selling costs etc etc etc etc.

For your downsize move. There is a cost to sell, a hassle to pack, a cost to redecorate the place you move to. You mentioned two years. It is likely you will loose money on any place that you purchased only two years ago.

BEST OF LUCK TO YOU.

I believe for federal taxes you get a one time break on the sale of your residence however once you take it you have to pay capital gains tax on the sale of any other home that you reside in. Dont know about cap gains in ohio.

OP, you need to contact a tax advisor, with all the recent changes I have NO idea, however, there was a tax break if you were in your house for at least 2 years. Also, no idea if what your are describing would affect the first sale (Ohio to TV) or only the second sale (TV to TV), or both. The HR Block office by Publix (off Wedgewood) is open year round and should be able to help you.

I find Nolo a great resource for basic legal questions although always check with a tax pro, CPA or attorney, to make certain your situation is as you believe it to be.

Here is an interesting point of which I was not aware from the Nolo article.

"If your spouse dies and you subsequently sell your home, you qualify for the $500,000 exclusion if the sale occurs within two years after the date of death and the other requirements discussed above were met immediately before the date of death."

The $250,000/$500,000 Home Sale Tax Exclusion | Nolo

The easiest way to get the correct professional answer is to buy the Turbotax software and answer all of the questions regarding the sale of your house or houses during the tax year. Turbotax will calculate any capital gains that you owe. But, the general rule is that you need to live in a house for 2 of the past 5 years as your primary residence to avoid capital gains taxes on the gain. So, if you lived in the house for less than 2 years total, you probably will owe tax on the gain. And, if you owned the house for less than one year, the gain would not be a capital gain, but it would be taxed as ordinary income. This rule is not a one time deal. It can apply to as many houses as you own throughout your life.

Good info. Nice post.

That was the law before 1997 and I think it was a one time cap gains exemption of $125,000. It is not that way anymore. See my earlier post if interested. :)
————
And, to our original poster from Ohio, please take a look at my earlier post in this thread where I talk about what I think I know, but my main advice was to talk to a CPA, and I recommended Bob Bloom.

Also, please take some woman-to-woman advice from me. Do not make too much info public. When it comes to being a woman asking a money question, especially about profits, you could get some all too “helpful” offers behind the scenes. I hope you already know to value your privacy and find good, professional people to help you with finances when you need it.

Common thinking, over time, has always mostly been about the cliche of the woman looking for a man with a few bucks. Well, hah! There are plenty of men around looking for a woman with money, a sugar mama, or in some cases even what is known as “a nurse with a purse.”

It is ok to ask certain questions here, but in real life, up-close and personal, stay smart and stay private about money. (I bet you already know this, but I could not help saying it just in case.)

Good advice, Boomer.

If you sold your house January 2017, you would already have taken the exemption in your 2017 tax return. Now you want to sell the home you bought in 2017. Since it is now 2 years, you are eligible for another $250 exemption for your 2019 tax return. It is unlikely that you made a profit in two years, taking into account any improvements and broker fees, closing costs.

The $250K exemption woild only apply if the house was her primary residence for 2 years.

Two years and one day from the time you purchased the house you intend to sell is the time I've been using for 20 years. If it closes one day before two years then Capital Gains are due.

The alternative is to strike a deal on the price and write the contract for the exact amount you purchase it for plus your expenses. Then collect the rest in a $uitcase! There is always a way. Not that I would ever do that but Dave Del Dotto and Carlton Sheets OF Real Estate Fame 10 or more years back taught this method. I think they are getting outta Coleman shortly! Good Luck.

For figuring the info here is good but check with a Lawyer or Accountant to be certain.

PM me with the details of the house. You never know. Let's save the commission.