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Location: Comunistafornia, and working to get out ASAP!
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Any real estate people/lawyers/or anyone else out there that can answer these questions?
We live in California, and we will be selling our property, we owe very little (less than $100,000) I know my wife and I will get the deduction together of $500,000, but my questions are:
1. Is the CGT paid on the full selling amount or only the amount after the $500,000 deduction?
2. Is that CGT paid at the moment of closing or do you wait until you file the coming year taxes?
Any real estate people/lawyers/or anyone else out there that can answer these questions?
We live in California, and we will be selling our property, we owe very little (less than $100,000) I know my wife and I will get the deduction together of $500,000, but my questions are:
1. Is the CGT paid on the full selling amount or only the amount after the $500,000 deduction?
2. Is that CGT paid at the moment of closing or do you wait until you file the coming year taxes?
Thanks a lot for any advise and help!
Whatever your selling price of the house is, deduct the amount you originally paid for it. That amount is not included in figuring out the capital gains. For example, if you bought the house for $200,000 and sell it for $700,000, you are in the clear with regard to CGT ($700,000 selling price minus the $200,000 original purchase price leaves $500,000 which is the married couple exemption.)
If you bought it originally for $200,000 and sell for $1,000,000, you subtract your non-taxable $500,000 capital gains exemption, and the original purchase amount of $200,000, and you'll have to pay CGT on $300,000, so $60,000 (20% of the $300,000 capital gains taxable amount).
I have never cleared over my exemption on my two house sales, but I believe (and I'm not sure), that you'll get the whole amount at closing and when the title changes to the new owner and you're responsible for declaring it and paying it when you file as usual. However, if you have a regular accountant, it might behoove you to ask to be sure. When you file, even if your capital gains is below the threshold, you still declare it in your return. It won't be taxed, but it will be documented. I'd keep the amount needing to be paid in capital gains until tax time so I could earn interest off it, then cut a check for the amount owed to the IRS with my return. Some banks are now offering up to 5%.
Location: Comunistafornia, and working to get out ASAP!
1,962 posts, read 5,200,309 times
Reputation: 952
Quote:
Originally Posted by MoMark
Whatever your selling price of the house is, deduct the amount you originally paid for it. That amount is not included in figuring out the capital gains. For example, if you bought the house for $200,000 and sell it for $700,000, you are in the clear with regard to CGT ($700,000 selling price minus the $200,000 original purchase price leaves $500,000 which is the married couple exemption.)
If you bought it originally for $200,000 and sell for $1,000,000, you subtract your non-taxable $500,000 capital gains exemption, and the original purchase amount of $200,000, and you'll have to pay CGT on $300,000, so $60,000 (20% of the $300,000 capital gains taxable amount).
I have never cleared over my exemption on my two house sales, but I believe (and I'm not sure), that you'll get the whole amount at closing and when the title changes to the new owner and you're responsible for declaring it and paying it when you file as usual. However, if you have a regular accountant, it might behoove you to ask to be sure. When you file, even if your capital gains is below the threshold, you still declare it in your return. It won't be taxed, but it will be documented. I'd keep the amount needing to be paid in capital gains until tax time so I could earn interest off it, then cut a check for the amount owed to the IRS with my return. Some banks are now offering up to 5%.
Thanks MoMark,
I inherited the property from my Dad, we took out a loan against it some years ago, we now owe about $90,000 on it. we're selling for about $775,000. So with all of your advice it seems we will be alright.
You maybe able to defer it with a 1031 tax exchange. That is if you are looking to buy another house. Rumor has it the government are going to bump it up to 600K for a married couple in the next couple of years.
The 1031 Starker tax exchange only works for rental and commercial properties. And you can't take possession of the proceeds - it MUST go to a 3rd party, and you have 180 days to close on the new property. If the property isn't up for rental you can't use the 1031.
The beauty of this plan is this:
you buy a property for rental
it goes up in value
you sell it
you reinvest the money in a bigger rental property
And unless the law changes - you do this three or four times, building up a nice amount of 'invested' money. When you are ready to retire you sell the final rental property and buy your 'dream house'. You rent the 'dream house' out for one day - then convert it to your primary residence, thus eliminating all the built up CG on all the rentals! This is the plan the wife and I have - we are on our 2nd rental property.
BTW - I said rent for 'one day' because there is currently no time limit for conversion from rental to primary residence. I personally will be renting our 'dream home' out to friends for one month before converting it over
Check the irs website for more info on the 1031 Starker exchange
I like how you think HappyandMarried!!! That reminds me of the couple in Montana who built a huge luxurious log cabin that now is valued at $1,000,000 on 15 acres I think it is. They purposely built the house...which is huge around 5000 sq. ft... with only two bedrooms to cut down on property taxes. Apparently in Montana property taxes are based on number of bedrooms. They pay around $2400/year!
Sometimes the tax laws result in funny solutions by those clever enough to legally work around them
I took a loan on credit card in May 2008 for 6% APR and invested in stocks . I lost almost 10K .Can I get a tax benefit out of it ?
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